Jobs For America

ADVANCE COPY JANUARY 2010
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Jobs for America
Investments and policies for economic growth
and competitiveness
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Jobs for America
and competitiveness

ADVANCE COPY

Ross DeVol and Perry Wong

with Armen Bedroussian, Anita Charuworn,
Anu Chatterjee, Candice Flor Hynek,
Kevin Klowden, and Benjamin Yeo
January 2010
Online
For an interactive look at some of the statistics included in this report, visit
www.milkeninstitute.org/jobsforamerica.
Acknowledgments
We gratefully acknowledge support for this study from the National Association of
Manufacturers (NAM).
About the Milken Institute

The Milken Institute is an independent economic think tank whose mission is to improve the
lives and economic conditions of diverse populations in the United States and around the world
by helping business and public policy leaders identify and implement innovative ideas for
creating broad-based prosperity. We put research to work with the goal of revitalizing regions
and finding new ways to generate capital for people with original ideas.
We focus on:
human capital: the talent, knowledge, and experience of people, and their value to
organizations, economies, and society;
financial capital: innovations that allocate financial resources efficiently, especially to
those who ordinarily would not have access to them, but who can best use them to build
companies, create jobs, accelerate life-saving medical research, and solve long-standing social
and economic problems; and
social capital: the bonds of society that underlie economic advancement, including
schools, health care, cultural institutions, and government services.
By creating ways to spread the benefits of human, financial, and social capital to as many
people as possible—by democratizing capital—we hope to contribute to prosperity and freedom
in all corners of the globe.
We are nonprofit, nonpartisan, and publicly supported.
© 2010 Milken Institute

Contents
Executive Summary 1
Introduction 8
Building a Foundation for Growth 9
Improving Economic and Tax Policy 12
Methodology 12
Corporate Income Tax Rate 13
R&D Tax Credit 24
Export Controls 32
Infrastructure Impacts 39
Background and Methodology 39
Projects and Impacts 42
Highway and Transit 43
Inland Waterways 45
Renewable Energy 45
Smart Grid 47
Nuclear Energy 48
Clean Coal Technology 50
Offshore Drilling and
Onshore Exploration and Development 50
Broadband 51
NextGen Air Transportation System 52
Drinking and Wastewater Infrastructure 53
Endnotes 55
Executive Summary
The U.S. economy appears to be emerging from recession, but the severity of this downturn has
left substantial underutilized resources in labor and product markets. To close the gap between
actual and potential GDP (that is, the full-employment level of output) as quickly as possible,
economic growth must accelerate beyond current expectations. Unless sustainable growth is
achieved, the unemployment rate will remain close to 10 percent in the immediate future and a
portion of the nation’s manufacturing capacity will continue to sit idle.
Economic and tax policy changes,

combined with targeted investment in
infrastructure, could effectively Key Findings
stimulate the economy in the near
term while positioning the nation for Economic and Tax Policy
sustained higher economic growth • Reducing the U.S. corporate income tax rate
over the medium and long term. Given to match the OECD average would trigger
the current economic environment, a new growth. By 2019, it could boost real GDP
government-backed infrastructure by $375.5 billion (2.2 percent), create an
program should be considered as an additional 350,000 manufacturing jobs, and
insurance policy to prevent further increase total employment by 2.13 million.
layoffs, stimulate job growth, and help • Increasing the R&D tax credit by 25 percent
restore the confidence of the American and making it permanent could boost real
labor force. GDP by $206.3 billion (1.2 percent), generate
316,000 manufacturing jobs, and raise total
employment by 510,000 within a decade.
Improving Economic • Modernizing U.S. export controls could
and Tax Policy increase exports in high-value areas. By
2019, these policy adjustments could
Globalization has forever changed the enhance real GDP by $64.2 billion (0.4
international competitive landscape. percent), create 160,000 manufacturing jobs,
Cross-border transactions, from trade and heighten total employment by 340,000.
to foreign direct investment, are now
the norm. Given these developments, Infrastructure Investment
the United States must re-evaluate its • The proposed investments analyzed in this
policies relative to other nations on a report, totaling $425.6 billion across 10
regular basis. With this objective in projects over three years (with just over half in
mind, the Milken Institute set out to highway and transit initiatives), translate into
evaluate the impact of changing $1.4 trillion in total output, including the ripple
certain economic and tax policies that effects generated across all sectors.
currently impede the nation’s ability to • Taken together, these 10 investments have
compete. the potential to create 3.4 million jobs directly
and, including all the ripple effects, 10.7
Specifically, we analyzed the potential million jobs in total (an average annual
effect of changing U.S. corporate tax increase of 3.5 million across three years).
rates, expanding the R&D tax credit, • The projects outlined could generate direct
and modernizing controls on exports earnings of $147.1 billion (and total earnings
of commercially available products to of $420.6 billion, including all ripple effects).
a representative group of countries.
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While the response to altering these policies would not be immediate, economic growth would
improve during the second year of their enactment.
To perform these three alternative simulations, we utilized a macro-econometric dynamic

equilibrium growth model of the U.S. economy. This allows us to estimate the resulting changes
in investment, exports, industrial production, manufacturing and total employment, wages and
incomes, federal fiscal conditions, and overall real GDP growth. We can quantify these impacts
by comparing a scenario in which the policy in question is adjusted to a baseline economic
projection in which current policy is assumed to continue.
Corporate Income Tax Policy Simulation

International differences in corporate income tax rates are a factor when firms determine where
to locate their corporate headquarters, R&D activities, production facilities, and distribution
networks—and today, the U.S. corporate income tax rate is second-highest among nations
belonging to the Organisation for Economic Co-operation and Development (OECD). With that
in mind, we ran a simulation in which the U.S. federal corporate income tax rate was cut by 13
percentage points to 22 percent, with the reduction being phased in over a five-year period. This
new rate would match the current OECD average.
Impacts on real GDP
Absolute change from baseline
Billions of chained 2005$
400
Adjusted corporate tax rate
Expanded R&D tax credit
Modernizing export controls
300
200
100
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sources: U.S. Bureau of Economic Analysis, Milken Institute.
Our results show that a lower corporate tax rate makes the United States a more attractive
location for business investment by filtering through a reduction in the user cost of capital. After
a rate cut is implemented, existing productive capacity in the U.S. is initially more heavily utilized
to fulfill domestic final demand and boost exports. In today’s economic climate, there are few
capacity constraints that would restrict production from rising to meet increased demand. The
impacts on annual economic growth in 2010 are not as large as in subsequent years, as it
would take time for businesses to adjust their investment and production plans.
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Impacts on total employment

Millions
2.5
2.0
1.5
1.0
0.5
0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sources: U.S. Bureau of Labor Statistics, Milken Institute.
The long-term impacts of reducing the corporate income tax rate include the following:
• Real GDP growth improves by 0.3 percentage point on an annual basis from 2011 to
2013, an average of 0.2 percentage point from 2014 through 2017, and 0.1 percentage
point in 2018 and 2019, relative to a baseline projection without a change in tax policy.
• Real GDP is $375.5 billion, or 2.2 percent, above the baseline projection in 2019.
• Exports respond to the lower corporate tax rate. By 2019, real exports stand at $233.3
billion, or 7.8 percent, above the baseline projection.
• Real business fixed investment jumps 4.6 percent, or $102.4 billion, above the baseline
scenario in 2019.
• Industrial production in the rate-cut scenario exceeds the baseline by 3.9 percent in
2019, while total employment increases by 2.13 million (1.4 percent) and manufacturing
employment rises by 350,000 (2.7 percent).
Impacts on manufacturing employment

Millions
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
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R&D Tax Credit Simulation

Although the United States pioneered the R&D investment tax credit in 1981, most other
advanced economies have implemented their own more aggressive versions of this policy.
Based on OECD calculations, the United States ranks 17th among member nations on the
effective rate of the R&D tax credit. Furthermore, the U.S. has kept the R&D tax credit
“temporary” for 29 years (in fact, it was recently allowed to expire again on December 31, 2009)
and has imposed restrictions on qualifying. Many other OECD countries appear to have created
a more attractive landscape for innovation and sustainable growth.
We evaluated the economic impact of increasing the R&D tax credit by 25 percent and making it
permanent. In this scenario, businesses increase their research and development spending,
therefore creating new products and services; enhancing productivity growth; expanding
investment in technology-intensive capital equipment; spurring greater exports, production,
employment, and incomes; and boosting overall real GDP growth.
The expanded R&D tax credit scenario produces the following results:
• Real GDP growth improves by 0.2 percentage point on an annual basis from 2011 to
2013, and by 0.1 percentage point after 2013, relative to a baseline projection without a
change in policy.
• After 10 years, real GDP is $206.3 billion, or 1.2 percent, above the baseline projection
in 2019.
• Real business fixed investment rises 4.8 percent, or $107.3 billion, above the baseline
scenario in 2019.
• Exports, especially technology-related goods and services, experience higher growth. By
2019, real exports stand at $63 billion, or 2.1 percent, above the baseline projection.
• Industrial production exceeds the baseline scenario by 4.4 percent in 2019. Total
employment rises by 510,000 jobs (0.4 percent) above the baseline at its peak in 2017,
and manufacturing employment jumps by 316,000 jobs (2.5 percent) above the baseline
in 2019.
Modernization of Export Controls Simulation

Here we assess the possible economic impacts of modernizing export controls on commercially
available technology products for a representative group of countries. Proponents of
modernization argue that “many current controls (outside of narrowly defined military niches)
aimed at protecting national security harm U.S. innovation and competitiveness in global
markets, thereby reducing economic prosperity, which is an essential element of U.S. national
security.” 1
It is not in our best economic interest to preclude the export of technology products that are
legally available from other advanced and NATO member nations. The logic is that if the United
States will not supply the desired technology, some other country will. For example, some
multilateral agreements on export controls afford member countries the latitude to exercise their
own discretion; this sometimes undermines the intent of such trade agreements. Because
purchasing nations are able to obtain this technology elsewhere, U.S. policy is not ultimately
effective—it simply prevents American firms from accessing new markets.
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We assume that a responsible modernization of export controls for certain goods and certain
countries would narrow the gap between U.S. market share in these nations and its share in the
total world market by 50 percent.
The results of the adjusted export control scenario include the following:
• Modernizing U.S. export controls would produce higher export growth in the future,
particularly in the high-valued-added areas in which the United States excels.
• The most rapid period of export growth (0.2 to 0.3 percentage point on an annual basis)
relative to the baseline occurs from 2011 to 2016, based on a 2010 implementation.
After that, export growth relative to that in the baseline moderates to 0.1 percentage
point annually. Real exports are $56.6 billion (1.9 percent) higher than the baseline in
2019.
• Real GDP rises by $64.2 billion (0.4 percent) relative to the baseline projection in 2019.
• Real business fixed investment grows faster in the adjusted export control scenario than
in the baseline scenario over the next decade. It stands $18.7 billion (0.8 percent) above
the baseline in 2019.
• Industrial production exceeds the baseline by 1.5 percent in 2019, while total
employment increases by 340,000 jobs (0.2 percent) and manufacturing employment
rises by 160,000 jobs (1.2 percent).
Infrastructure Investment
Globalization has upended the way we think about America’s place in the world. Even with an
issue like infrastructure, which once was considered purely a domestic concern, we have to
consider the implications for the nation’s ability to compete on an international stage. It has
become painfully apparent that U.S. infrastructure, once the envy of the world, is now strained
and aging, while other nations are constructing bullet trains, cutting-edge broadband networks,
public transit systems, modern ports, and energy delivery systems, while making significant
investments in alternative energy.
Modernizing the nation’s infrastructure represents an opportunity to create thousands of jobs

and stimulate the economy in the near term. In assessing the need, the American Society of
Civil Engineers estimates it would take $2.2 trillion over the next five years to fix all the nation’s
infrastructure issues, including a projected $549.5 billion for highway spending. 2
Given the current pressures on federal, state, and local budgets, government’s ability to finance
ambitious infrastructure investments is limited. It will be necessary to examine alternative
approaches to funding, including public-private partnerships.
With this backdrop, we set out to determine the potential effects of various infrastructure
investments on the job market, choosing 10 projects for study. The selected projects are high-
impact investments in both high-growth and traditional industries that provide high-paying jobs,
offering solid potential for sustainable development. All 10 projects fall under the broad themes
of public safety, competitive transportation, and energy security, all of which are crucial for the
United States.
The proposed investment funding was derived from various sources, including congressional
reports, industry analysts, academia, the National Association of Manufacturers (NAM), and the
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Milken Institute. The particular projects were modeled on departments’ recent allocations, using
the distribution of that funding to indicate how new investments might be disbursed. 3 The Milken
Institute collected these proposals and analyzed the economic impacts on an individual project
basis so that policymakers can make informed decisions about where to allocate resources.
We analyzed proposed investment funding over a three-year period to determine near-term job
creation and economic impacts. It is important to note that these infrastructure investment
proposals utilize a mix of public funding, public-private partnerships, and other types of
government-provided incentives such as loan guarantees.
We used the Bureau of Economic Analysis’ (BEA) Regional Input-Output Modeling System
(RIMS II) to compute the economic and employment impact of proposed investments. To
capture the extent of an industry’s economic impact, the BEA assigns unique coefficients,
known as “multipliers,” to specific industries. Multipliers enable us to quantify how an industry’s
employment, earnings, and output ripple through other economic sectors. For example,
because highway expansion mainly involves construction, the BEA multiplier for construction
was applied to those funding amounts. Indirect employment effects capture the impact on the
supply chain (which in this case includes manufacturing, engineering services, the wholesale
and retail trade, and a broad array of material suppliers).
Investment Impacts
Taken together, the proposed investments amount to $425.6 billion. Highway and transit
projects account for just over half the total investment pool. Investments in broadband
infrastructure and onshore and offshore oil exploration account for the next largest investment
amounts.
All the projects combined will create 3.4 million construction- and R&D-related jobs, which will
generate an estimated $147 billion in earnings. Accounting for ripple effects across other
sectors, the total impact will add up to 10.7 million jobs, $420.6 billion in earnings, and $1.4
trillion in output. Because these impacts will likely be spread across a three-year period, it is
important to note that the average annual increase would be 3.5 million jobs and $468 billion in
output.
Summary of economic impacts by project

(2010-2012)
Proposed Direct Direct Total Total Total
investment impact impact impact impact impact
amounts employment earnings employment earnings output
Project (US$B) (# jobs) (US$B) (# jobs) (US$B) (US$B)
Highway and Transit System 225.0 2,106,914 85.8 6,189,480 238.2 775.4
Broadband Infrastructure 55.0 293,736 15.1 1,048,064 43.9 158.3
Onshore Exploration and Development/Offshore Drilling 46.5 194,844 9.9 896,185 38.8 145.0
Drinking Water and Wastewater Infrastructure 30.0 280,922 11.4 825,264 31.8 103.4
Sustainability Projects: Smart Grid 24.0 219,578 9.1 649,627 25.1 82.0
Nuclear Energy 15.0 139,145 6.1 397,271 15.6 48.7
Sustainability: Renewables (Solar, Wind, Biofuel) 14.5 115,874 4.8 337,558 13.1 44.3
NextGen 10.4 30,631 2.7 181,921 8.9 32.1
Inland Waterways 2.6 23,951 1.1 67,100 2.7 8.1
Sustainability Projects: Clean Coal Technology 2.55 24,018 1.1 66,127 2.6 7.9
Total of all Projects 425.6 3,429,612 147.1 10,658,597 420.6 1,405.3
Note: Total economic impact is an accumulated statistic over the 3-yr period.
For example, total employment translates to an average annual of 3.5 million jobs per year.
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Average output per employee stemming from the total impacts from all projects amounts to
about $132,000. Output per employee in 2009 across all non-farm sectors was slightly more
than $108,000. 4 The additional output per employee generated through these infrastructure
projects reflects the valuable nature of such activity, the quality of the jobs that would be
generated, and the incremental wealth that would be created. Average wages across these
projects would amount to $43,000 annually—substantially more than the current average of
$30,500 across all private, service-providing sectors. 5
In addition, for every dollar invested in these projects, an additional $2.30 6 would be generated
across all sectors. For every $1 billion invested in these projects, slightly more than 25,000 jobs
are created.
Because most of the investments would be injected directly into the construction industry, some
of the direct impacts may be short-lived as the initial funding dries up. But the indirect impacts
would provide other sectors with a tremendous boost. Manufacturing, services, and trade, all of
which support various construction activities, would have the opportunity to capitalize on the
investments.
Our project-by-project analysis shows the following results:
• Highway and transit investment of $225 billion over three years creates 6.2 million jobs
(roughly 2 million per year), along with $238.2 billion in earnings and $775.4 billion in
output.
• Broadband infrastructure investment of $55 billion generates nearly 1.1 million jobs
(349,300 per year), along with $43.9 billion in earnings and $158.3 billion in output.
• Investment in offshore drilling and onshore exploration and development of oil and
natural gas wells totaling $46.5 billion over three years creates 896,200 jobs (298,700
per year), along with $38.8 billion in earnings and $145 billion in output.
• Drinking water and wastewater infrastructure investment of $30 billion over three years
results in 825,300 jobs (275,100 annually), along with $31.8 billion in earnings and
$103.4 billion in output.
• Smart grid investment of $24 billion over three years produces 649,600 jobs (216,500
annually), along with $25.1 billion in earnings and $82 billion in output.
• Nuclear energy investment of $15 billion over three years creates 397,300 jobs (132,400
annually), along with $15.6 billion in earnings and $48.7 billion in output.
• Renewable energy investment of $14.5 billion over three years generates 337,600 jobs
(112,500 per year), along with $13.1 billion in earnings and $44.3 billion in output.
• Next Generation Air Transportation System (NextGen) investment of $10.4 billion over
three years creates 181,900 jobs (60,600 per year), along with $8.9 billion in earnings
and $32.1 billion in output.
• Inland waterway investment of $2.6 billion over three years generates 67,100 jobs
(22,400 annually), along with $2.7 billion in earnings and $8.1 billion in output.
• Clean coal technology investment of $2.6 billion over three years creates 66,100 jobs
(roughly 22,000 per year), along with $2.6 billion in earnings and $7.9 billion in output.
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Introduction
In this study, we estimate the number of jobs and overall economic activity generated through
changes in economic and tax policies and specific infrastructure investments. The first section
evaluates the likely economic impacts of changes in policy impeding U.S. competiveness over
the medium and long term. Globalization has forever changed the international competitive
landscape with multiple cross-border transactions from trade to foreign-direct investment.
Specifically, we analyze changes to U.S. corporate tax rates, the R&D investment tax credit and
some modernizing controls on exports of commercially available products to countries subject to
restrictions.
Using a macro-econometric model of the U.S. economy, we evaluate the probable economic
impacts over 10 years of a 13 percentage point reduction in the U.S. statutory corporate income
tax rate, phased in over a five-year period. The rate would match the current average of
Organisation for Economic Co-operation and Development (OECD) member nations. A lower
corporate income tax rate makes the United States a more attractive location for investment by
cutting the user cost of capital and boosting economic activity.
The second simulation looks at the stimulus provided by expanding the R&D investment tax
credit and making it permanent. The R&D tax credit is a key policy promoting U.S. innovation.
The third simulation assesses the potential results of modernizing export controls on
commercially available technology products for a representative group of countries. While it is in
the United States’ national security interests to restrict the sale of nuclear and other sensitive
military technologies, it is not in our best economic interest to prohibit the export of technology
products that are available from other OECD member nations.
The second section of the study investigates the near-term job creation, earnings, and output
created in other industries through targeted investments in 11 infrastructure categories such as
highways, inland waterways, nuclear power, renewable energies such as solar, the smart grid,
and broadband. In the near term, infrastructure investment can create thousands of jobs and
stimulate the economy; in the long term, it can provide significant competitive advantages
through improved highways, shipping, and upgraded electrical distribution, among other
benefits.
Many innovations have either been created or facilitated through infrastructure investment, both
in the public and private sectors. Although the construction jobs created by infrastructure
investment are typically only short-term, the new opportunities and economic activity fueled by
infrastructure investment continue for years, if not decades, after the projects are completed.
We analyze proposed investment funding over a three-year period. These new investments
would be in addition to recent funding. It is important to note that these infrastructure investment
proposals are a mix of publicly funded, public-private partnerships and other types of
government-provided incentives such as loan guarantees.
We use the Bureau of Economic Analysis’ Regional Input-Output Modeling System (RIMS II) to
compute the economic and employment impact of the allotted and proposed investments. To
capture the extent of an industry’s economic impact, the BEA assigns unique coefficients,
known as “multipliers,” to specific industries. Multipliers enable us to quantify how an industry’s
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employment, earnings, and output ripple through other economic sectors. For example,
because highway expansion mainly involves construction, the BEA multiplier for construction
was applied to those funding amounts. Indirect employment effects capture byproducts, like
manufacturing, and wholesale and retail trade.
Building a Foundation for Growth

Infrastructure is the lifeblood of any modern economy—and the story of America’s rise to global
economic leadership cannot be told without taking into account the vast and ambitious building
projects that paved the way for growth and commerce. The workers who bridged waterways,
built a mighty railroad that spanned a continent, and constructed our nation’s backbone from
steel and concrete did much more than transform the American landscape. They provided the
underpinnings for future generations’ prosperity.
For centuries, America’s economic growth has been inextricably bound to visionary investments
in infrastructure. That fundamental link has become urgently relevant again today, as the United
States finds itself bombarded with simultaneous challenges. The aftermath of a once-in-a-
generation financial crisis has left high unemployment and a sluggish economy in its wake.
Meantime, the imperatives of remaining competitive in the new global marketplace grow more
pressing with each passing year.
At the very moment government budgets have come under intense pressure, it has become
painfully apparent that our nation’s infrastructure, once the envy of the world, is now strained
and aging, while other nations are constructing bullet trains, cutting-edge broadband networks,
public transit systems, and modern ports. In fact, the American Society of Civil Engineers
estimates it would take $2.2 trillion in infrastructure spending over the next five years to fix all of
the nation’s infrastructure issues, including a projected $549.5 billion shortfall in highway
spending. 7
Spending on vast public works is a daunting prospect in this environment, but the United States
has a remarkable history of using infrastructure to fuel economic growth, even in times of crisis.
Out of the depths of the Great Depression rose the Tennessee Valley Authority, monumental
engineering achievements like the Hoover Dam, and countless highways, bridges, irrigation
projects, and public buildings. These projects provided much-needed jobs—and set the stage
for an era of tremendous post-war expansion and further innovation. Although the construction
jobs created by infrastructure investment are short-term, the new opportunities and economic
activity that result continue for years, if not decades, after the projects are completed.
The U.S. economy has lost 7.2 million jobs since December 2007. 8 National unemployment
stands at 10 percent, a rate not seen since the early 1980s. The Congressional Budget Office
projects a slow economic recovery in 2010, and the jobless rate is expected to remain
stubbornly high throughout the year if no additional investment is injected into the economy. 9
Infrastructure investment—whether undertaken by government or initiated via public-private

partnerships—offers a particularly compelling potential solution to the nation’s urgent need for
immediate job creation. Undertaking infrastructure development will put manufacturing’s labor
force back to work and take advantage of its idle capacity through the use of domestically
produced products.
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Policymakers have echoed industry’s call for a stronger manufacturing sector as a way to
rebuild the economy. The White House recently released “A Framework for Revitalizing
American Manufacturing,” which states that “a competitive manufacturing base can help build a
strong foundation for future job and economic growth in both manufacturing and services.” 10
Recently approved (and currently debated) efforts to restart the economy have focused on
specific investments in critical infrastructure needs such as broadband, smart-grid technology,
and delivery of alternative energy, among others. All of these depend heavily on U.S.
manufacturing, particularly for research and development. As policymakers consider various
options to spur economic growth and job creation, it makes sense to direct efforts toward
jumpstarting the manufacturing sector, given the depth and breadth of additional economic
activity generated within the sector and the opportunities for further growth the sector provides
for other parts of the economy.
Encouraging growth in the manufacturing sector is critical to overall economic recovery and
middle-class prosperity. This sector, which has come under great pressure in recent years, can
still generate powerful ripple effects: Every job created in manufacturing generates more than
two-and-a-half jobs elsewhere in the economy. 11 These jobs also typically pay significantly more
than others requiring a similar level of skills. Higher wages mean healthier consumer spending,
which has been the primary driver of U.S. economic growth. This makes job creation in
manufacturing a powerful economic stimulus strategy.
In addition to the obvious short-term imperative of job creation, infrastructure development

cannot be neglected if America is to remain competitive on the global stage. In multiple areas,
the nation needs to make a commitment to modernizing its infrastructure. These investments
will provide the building blocks for further innovation, driving broad, sustained economic growth.
Expanding broadband capacity is a case in point. From the earliest days of the telephone and
the telegraph, the United States has always set the pace for the rest of the world when it comes
to communications. But today it lags behind other nations in terms of the speed, reach, and
efficiency of its broadband network. Upgrading our capacity will not only create jobs in the short
term, but will also set the stage for a host of new efficiencies (including smart-grid technologies
and revolutionary health IT, to name just two). Many rural communities have watched as the
digital revolution passed them by, but connecting these areas will create additional commerce
and opportunities. There is no limit to the innovation that may result if we create a network that
can allow a greater flow of goods and ideas.
Delivering renewable energy is another area in which infrastructure investment can have a
transformative effect. In the East Coast blackout of 2003, the nation learned the hard way that
its existing electric grid is antiquated and straining at maximum capacity. To handle the load,
America needs to complete a national smart grid. Perhaps even more important than its ability
to increase capacity, this project will allow us to begin delivering renewable energy, enhancing
the nation’s energy security and reducing carbon emissions. Because the best wind and solar
resources are concentrated far from where they are needed, the grid must be able to transport
electricity over hundreds or even thousands of miles. These resources are also intermittent—the
sun doesn’t always shine and the wind doesn’t always blow—so the grid must be able to either
store energy or add supply from conventional sources during peak periods. The smart grid is
even necessary to meet future alternative transportation needs, as plug-in hybrid vehicles
continue to grow more popular. The ability to tap more alternative fuel and power sources lies at
the crux of efforts to transform the United States into a green economy.
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Whether the challenge is upgrading our water delivery systems or streamlining the
transportation networks that enable mobility and trade, it’s important to consider infrastructure
improvements as more than short-term construction projects. They are vital elements of
remaining competitive in the global economy.
The United States cannot afford to fall behind nations such as Germany, which is already
staking out a leadership position in green technologies. China, too, is using infrastructure
investment not only for short-term stimulus but also to provide significant long-term competitive
advantages through high-speed rail, improved highways, shipping, and upgraded electrical
distribution. As the developing world starts a push for energy efficiency and advanced
telecommunications, it is essential that the United States remain at the forefront of such
technologies.
The global economy and the competitive landscape have been profoundly altered in the past
decade. The rules of the game have changed. To come out among the winners, the United
States will have to reconsider many of its long-held policy assumptions and reassess its
priorities.
To address the challenges of globalization, the United States needs updated and consistent
policies that promote the interests of U.S. manufacturers by enhancing their ability to invest in
R&D, to compete, and to expand to growing markets quickly. Steps that facilitate new trading
relationships, expand the production of goods, and promote more aggressive investment in
R&D can enhance the manufacturing sector’s long-term ability to create jobs domestically.
Despite the recession, the United States remains the global leader when it comes to
manufacturing, producing more than 20 percent of the world’s manufactured goods. (By way of
comparison, second-place China produces 12 percent). 12 The U.S. economy remains more
dependent on its own capacity to make things domestically than on its ability to buy them from
somewhere else. But there is no denying that the dominance of U.S. manufacturing has been
steadily eroding—and that trend has been exacerbated by the downturn. Nearly 2 million
American manufacturing jobs have been lost since December 2007, more than in any other
industry. Some manufacturers have even outsourced their research and development
operations to foreign partners or subsidiaries. 13
It is not too late to reverse this decline. The United States remains the world’s cradle of
technological innovation, thanks in large part to manufacturing. In 2007 (the most recent year
for which data is available), the manufacturing industry spent $187 billion on research and
development, or 70 percent of all R&D spending in the nation that year. 14 To reassert their
leadership role, some of America’s top manufacturers are taking steps to reinvigorate the
sector. General Electric, which has begun bringing off-shored jobs back to U.S. soil, has called
for the United States to increase its manufacturing base employment to 20 percent of the work
force, saying the nation has outsourced too much in some areas and can no longer rely on the
financial sector and consumer spending to drive demand. 15
As it considers the best route out of a tough recession, the United States stands at a
crossroads. The nation can no longer afford to take its leadership position for granted in a
fiercely competitive global economy. But if we are willing to make strategic and forward-looking
investments and discard the outdated policies that hinder our ability to compete, America can
emerge from this downturn with greater efficiency, a greener economy, and renewed prosperity.
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Improving Economic and Tax Policy

Globalization—the process of establishing greater global economic integration and
interdependence 16 —has almost become a cliché that analysts fall back on to explain economic
and social phenomena that seem to have no documented or empirical underpinnings. However,
in the context of understanding how firms make location and investment decisions and affect
national economic growth rates, globalization is indeed a powerful, tangible factor—one that
heightens the importance of international competition and tax and economic policy
considerations more than ever before.
We begin our analysis with an evaluation of the likely medium- and long-term economic impacts
of changing policies that currently impede U.S. competiveness.
• First, we evaluate the probable economic impacts over 10 years of a 13 percentage

point reduction in the U.S. statutory corporate income tax rate, phased in over a five-
year period.
• The second simulation looks at the impact of expanding the R&D investment tax credit—
a key policy promoting U.S. innovation—and making it permanent.
• The third simulation assesses the potential results of modernizing export controls on
commercially available technology products for a representative group of countries.
Methodology
To perform these three simulations, we utilized a macro-econometric dynamic equilibrium
growth model of the U.S. economy. This allows us to estimate the resulting changes in
investment, exports, industrial production, total employment (and employment in categories
such as manufacturing), wages and incomes, federal fiscal conditions, consumption, and overall
real GDP growth. We can quantify these changes by comparing a scenario in which policy is
changed to a baseline economic projection in which there is no adjustment in policy.
The macro-econometric model 17 embodies major properties of the Neoclassical growth models
developed by Robert Solow and incorporates key insights and many theoretical approaches to
the business cycle (Keynesian, New Keynesian, Neoclassical, Monetarist, and Supply-side).
This structure assures that short-run cyclical movements will converge to a robust long-run
equilibrium.
In growth models such as the one utilized in this analysis, the expansion rate of technical
progress, the available human capital, and the physical capital stock determine the productive
potential of an economy. Both technical progress and the capital stock are governed by
investment, which in turn must be in balance with post-tax capital costs, available savings, and
the capacity requirements of current spending. The capacity to supply goods and services is
tied to a production function combining the basic inputs of labor hours, energy usage, the capital
stocks of business equipment and structures, and government infrastructure. The “total factor
productivity” of this composite of tangible inputs is driven by expenditures on research and
development that produce technological progress.
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Consequently, monetary and fiscal policies influence both the short- and long-term
characteristics of the U.S. economy through their impacts on national saving and investment.
The model of output, prices, and financial conditions is melded with the growth model to present
the detailed, short-run dynamics of the economy. In specific goods markets, the interactions of a
set of supply and demand relations jointly determine spending, production, and price levels.
Typically, the level of inflation-adjusted demand is driven by prices, income, wealth,
expectations, and financial conditions.
Corporate Income Tax Rate
Simulation Results
• A reduction in the U.S. corporate income tax rate to match the average of OECD
nations would provide a substantial boost to economic growth.
• In the lower-tax scenario, real GDP growth improves by 0.3 percentage point from
2011 to 2013, an average of 0.2 percentage point from 2014 through 2017, and 0.1
percentage point in 2018 and 2019, relative to a baseline projection without a change
in policy.
• Real GDP is $375.5 billion or 2.2 percent, above the baseline projection in 2019.
• Exports respond to the lower corporate tax rate. By 2019, real exports stand at
$233.3 billion, or 7.8 percent, above the baseline projection.
• The United States becomes a more attractive location for investment. Real business
fixed investment jumps 4.6 percent, or $102.4 billion, above the baseline scenario in
2019.
• Industrial production exceeds the baseline by 3.9 percent in 2019, while total
employment increases 2.13 million (1.4 percent) and manufacturing employment rises
by 350,000 (2.7 percent).
International differences in corporate income tax rates are a factor when firms determine where
to locate their corporate headquarters, R&D activities, production facilities, and distribution
networks. Looking solely at the corporate income tax rate, the United States has become less
attractive as a location for investment as other nations in the Organisation for Economic Co-
operation and Development (OECD) have slashed rates over the past two decades. The U.S.
statutory corporate income tax has remained at roughly 40 percent (the federal rate of 35
percent plus the average state rate of 4.7 percent) for the past 20 years. That tax rate is
second-highest among OECD countries today, trailing only Japan. Meantime, the OECD
average has fallen from 47 percent in 1981 18 to 26.3 percent in 2009. 19
Globalization and Location Decisions
When the United States was still a relatively closed economy, roughly prior to 1980, corporate
income tax rates were not viewed as a crucial factor in determining the competitiveness of U.S.
firms. In an era with few cross-border transactions, higher corporate tax rates were thought to
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have a slight dampening effect on investment, but no discernable impact on the location of
investment. 20 With immobile factors of production, a high U.S. corporate tax rate was seen as
being equitable and progressive, since the holders of corporate debt and equity were high-
income, wealthier individuals.
Even today, some voters (and thus some members of Congress representing them) advocate
higher taxes on both high-income individuals and corporations (even as many European Union
nations are reducing corporate tax rates), believing that both actions are justified on the basis of
promoting tax fairness. 21 Unfortunately, this position is harming the international
competitiveness of U.S. firms, our nation’s ability to attract investment, and most regrettably, the
prosperity of the U.S. workforce. Contrary to a popular assumption, raising corporate taxes does
not necessarily reduce income inequality. Why? Because corporate taxes are another
component of the cost of doing business affecting corporations (just like higher electricity prices
or employer-provided health-care benefits), and ultimately these costs are passed on to
consumers and shareholders. Because manufacturing investment is now highly mobile across
borders, U.S. manufacturers and their workers have borne the brunt of this outdated thinking on
corporate tax policy.
Tax policy is no longer just a domestic consideration. Today, globalization forces firms to
operate a worldwide network of activities to remain competitive. New technological advances
have diminished the costs of transportation, telecommunications, and computation, increasing
the ease of global information flows. Globalization is expanding the movement of goods,
services, capital investment (portfolio and direct), people, ideas, and technology itself. The firms
that succeed, whether large or small, will be those that can meet global production standards
and tap into a worldwide network.
Information technology has quickened the pace of these changes. In effect, by reducing the cost
of communications, IT has opened the door to the globalization of production and capital
markets. This trend has spawned new competition, innovation, and quicker diffusion of next-
generation technology. One consequence, however, is that firms have become ever more
sensitive to differences in the cost of operating in one country versus another—and corporate
tax rates are a key part of that accounting.
A review of globalization’s growing impact on the U.S. economy is enlightening. As recently as

1960, exports and imports represented slightly less than 7 percent of U.S. gross domestic
product. But by 2008, trade in goods and services represented 28.2 percent of real GDP. 22 U.S.
multinational corporations (MNCs) now account for two-thirds of the nation’s merchandise
exports. 23 For policymakers, the growing importance of these firms has crucial implications: If
U.S.-based MNCs do not find a favorable tax policy environment here, they will choose to
produce more goods abroad and export fewer manufactured goods from the United States,
harming employment and incomes.
More important for corporate tax policy, U.S. cross-border investment, both outbound and
inbound, has risen from slightly above 1 percent in 1960 to more than 18 percent of real GDP in
2008, hitting $2.4 trillion. The U.S. Treasury Department estimated that in 2007 the aggregate
cross-border value of these capital assets reached $26 trillion.
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Corporate Taxes and Investment
Corporate tax rates influence businesses’ investment decisions by raising the user cost of
capital. As the pioneering work of Dale Jorgenson showed, a higher corporate tax increases the
“hurdle rate” (the required rate of return for an incremental project to be funded) for a particular
capital investment. Thus, through a higher user cost of capital, the demand for capital in the
corporate sector is diminished. Under the Jorgenson approach, later adapted by Hall, 24 the cost
of capital services is the implicit annual cost to a company of leasing a particular capital asset.
The rental cost formulation combines the effects of the cost of financial capital (debt and equity),
the corporate tax laws (including applicable tax credits), the physical depreciation of a particular
asset, along with its relative purchase price, and the anticipated inflation rate.
Under this specification, investment responds to the level of the real cost of capital services, but
reacts to both the level and the change in expected output. A lower corporate tax rate lowers the
hurdle rate, increasing the long-run optimal capital investment. However, a lower corporate tax
rate would also cause the short-run expected or desired output to rise, spurring a more than
proportional initial response in capital investment through this “accelerator” effect as it reacts to
the change in output.
A high corporate tax rate, which is currently in place in the United States, raises the cost of
capital by raising the after-tax rate of return that investors require and the pre-tax return that a
firm’s capital investment must earn to compensate investors and pay taxes to the government. 25
If the before-tax rate of return is inadequate, investors will allocate their capital to alternative
opportunities, and productive investment will be constrained.
In addition, the corporate income tax creates other investment distortions. First, it is part of a
“double taxation” of corporate income—dividends paid to owners of equity are taxed after
corporations pay taxes on income. 26 Since interest expenses are deductible from income,
corporations rely more heavily on debt financing and less on equity financing than would be
optimal without the corporate tax.
Other domestic distortions are created by a high corporate income tax rate:
• It reduces the incentives to save because the expected after-tax cost of investing is
lessened.
• It creates biases in the organization of businesses by discouraging incorporation in favor
of forms that are not subject to the tax (such as partnerships and sole proprietorships). 27
• Since it taxes alternative assets and industries at different effective rates, it shifts
economic activity toward more lightly taxed areas.
• More resources are devoted to tax compliance and avoidance planning, leaving fewer
resources for productive investment.
International distortions are created as well, and these are magnified in today’s global economy.
Corporate tax rates may not determine global savings levels, but they will affect where savers in
different countries choose to place their investments. Nations with higher corporate taxes will
lose investment to lower-tax countries, holding all other location factors constant.
Another particularly onerous feature of the U.S. corporate tax system is that it taxes U.S.
multinationals on their worldwide earnings, but most U.S. trading partners take a different
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approach (raising a crucial implication in the second bullet point below). Most industrialized
countries use a territorial system for their MNCs in which the home country exempts all or most
of the firm’s foreign earnings from home-country taxation. 28
Among the other international considerations of a high corporate tax rate:
• The efficiency of investment is reduced as businesses allocate capital investment in

specific projects across the globe based largely on tax considerations.
• The tax base of relatively high-corporate-tax countries may be eroded further as MNCs
attempt to realize profits in low-tax countries and slow or diminish repatriation.
• A high-tax country will curtail the amount of capital available to workers, which tends to
reduce their wages.
• Lower foreign direct investment diminishes the opportunities for technology transfer and
knowledge spillovers from foreign firms in the host country.
Considering all of these factors together, an economy with lower corporate tax rates will be one
with higher levels of domestic investment and a greater accumulation of productive capital.
Having more capital stock available per worker augments productivity and improves long-run
economic growth, leading to a higher standard of living for workers. Capital-intensive industries,
whether producers or users of capital goods, are harmed most severely by non-competitive
corporate tax policies. Since manufacturing encompasses both heavy users and producers of
capital goods, it is the industry with the most to lose if the United States keeps its outdated
corporate tax policy in place.
International Comparisons of Statutory Corporate Income Tax Rates
Most countries have become aware that in a globalized world, firms’ investment decisions are
highly elastic with respect to differences in corporate tax rates between nations. OECD member
nations and many developing nations have been adjusting their corporate tax policies not only
to remain attractive for domestic firms but also to effectively compete for foreign direct
investment. Recent applied theoretical research has produced a new construct, the Effective
Average Tax Rate (EATR), which captures MNCs’ investment location decisions quite
accurately. The EATR is a weighted average of an adjusted statutory rate and an effective
marginal tax rate. 29 Additionally, the location where taxable profits are realized is most affected
by the statutory corporate tax rate. 30
As recently as 1988, the United States had one of the most competitive statutory corporate tax
rates in the world. But while other nations have slashed their statutory corporate tax rates, the
U.S. has kept them virtually constant. 31
Consider the case of Germany: In 2000, it had one of the highest corporate tax rates in the
world, at 52.4 percent, but that rate now stands at 29.4 percent. Even in France, which is not
exactly a bastion of Western-style capitalism, today’s statutory corporate tax rate is 32.3
percent, down from 40 percent a decade ago. Since 1994, Italy has reduced its corporate
income tax rate by over 20 percentage points; it now stands at 31.4 percent.
The European Union has seen a flurry of corporate income tax adjustments, and not just among
its larger members. 32 For example, the Republic of Ireland has slashed its rate by 27.5
percentage points since 1994; it is now among the lowest in the OECD at 12.5 percent. Other
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EU countries that have implemented sizable cuts in their corporate tax rates include Poland and
the Slovak Republic (21 percentage points), the Czech Republic (19 percentage points), and
Hungary (16 percentage points).
Cuts in statutory corporate income tax rates have been prevalent throughout Asia as well.
Vietnam reduced its rate by 3 percentage points in 2009 to 25 percent (continuing a downward
trend from 35 percent in 1999). Singapore approved a reduction in its corporate tax to 18
percent in 2008 in an attempt to remain competitive with Hong Kong’s 16.5 percent. In an ever-
growing awareness of cross-border investment sensitivity, even China responded by cutting its
rate to 25 percent in 2008.
Many of these statutory corporate tax rate cuts have been accompanied by base-broadening
measures and reductions in exclusions (such as less generous depreciation allowances).
Nevertheless, the United States now lags behind the competitiveness curve as it relates to
corporate tax policy. The graph below shows how the unweighted OECD statutory corporate
income tax rate has plummeted, while the U.S. rate has been constant. If it weren’t for Japan at
40.7 percent, the United States would have the highest rate among all OECD countries.
Statutory corporate income tax rates

OECD average vs. United States
Tax rate
45
OECD average
United States
40
35
30
25
88 90 92 94 96 98 00 02 04 06 08
Sources: OECD, Milken Institute.
Empirical Evidence of the Economic Impacts of Corporate Tax Rates
There is a fairly robust body of economic literature on the impact of corporate taxes on
investment. Starting with Jorgenson 33 in 1963, and later Hall and Jorgenson in 1967, an array of
noteworthy studies were performed by public finance economists. A small sample of earlier
studies 34 includes Summers, 35 Feldstein, Dicks-Mireaux and Poterba, 36 Auerbach, 37 King and
Fullerton, 38 Slemrod, 39 and Auerbach and Hassett. 40 In general, this body of literature finds
highly significant negative effects on investment stemming from corporate income taxes;
however, the size of the impact varies depending on the methodology deployed.
Changes in international corporate tax policies over the past 30 years have provided a rich
environment for testing how rate changes affect cross-country economic performance.
Econometric studies on a wide variety of outcome measures have been analyzed. Because
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many OECD countries adjusted corporate tax rates at different times and by different amounts,
we can examine a real-world experimental laboratory. One of the most fruitful areas of study
has examined the direct relationship between statutory or effective corporate tax rates and
inward foreign direct investment (FDI). This body of empirical research has found a robust
and significant inverse relationship between corporate tax rates and inward FDI. An important
study by Desai, Foley, and Hines 41 provides a powerful measure. They found that a 1-
percentage-point increase in the corporate tax rate in a MNC subsidiary’s host country reduced
long-run capital investment by 3.7 percent.
Another important study by Becker, Fuest, and Riedel examined not only the quantity but also
the quality of foreign direct investment. 42 On the quantity side, they found that a 1-percentage-
point increase in the corporate tax rate decreases the capital stock by 1.2 percent. However,
their findings on the quality of FDI proved to be most insightful. The first quality estimate points
to a sorting of profitable investment projects away from the home of the parent firm toward
affiliates with lower corporate tax rates. They find that a 1-percentage-point decrease in the tax
rate differential between the subsidiary’s and the parent’s corporate tax increases the
subsidiary’s asset profitability by 0.8 percent. Secondly, they conclude that a higher corporate
tax rate has a statistically significant and positive impact on the payroll intensity of corporate
production. One specification implies that a 1-percentage-point increase in the corporate tax
rate causes the payroll-to-capital ratio to expand by 0.5 percent in the affiliate location. In other
words, less-capital-intensive and less-profitable investments are made when corporate taxes
are higher.
Other recent studies focus on how corporate rates disproportionately affect productivity
growth in the economy. One pathway for this effect is through a distortion in relative input factor
prices, generally raising the price of capital equipment in relation to that of labor. This will tend
to push investment to less-productive sectors, especially in manufacturing. 43 Additional
empirical findings show that at both the firm and industry level, corporate taxes have adverse
impacts on total factor productivity (TFP) growth. One study shows that a 5-percentage-point
reduction in corporate income tax rates boosts average annual productivity growth by 0.4
percent over a 10-year period for firms with productivity at or above the median relative to those
below it. 44 Another study examined a panel of data covering 21 industries in 12 OECD countries
from 1981 through 2001, revealing a strong negative relationship between corporate tax rates
and TFP growth. 45
The influence of corporate tax rates on wage growth has been another area of recent research.
One study, based on cohort data from 1979 to 2000, concluded that if the marginal corporate
tax rate increases by 1.0 percent, wages decline by 0.7 percent. 46 An important analysis of
manufacturing was performed utilizing data captured over 22 years in 72 countries. The
empirical results reveal that a 1 percent rise in corporate tax rates is associated with a 1 percent
decline in hourly manufacturing earnings. 47 A number of other studies have likewise
documented the negative impact of corporate tax rates on wages.
A key area of research in recent years has focused on the link between corporate tax rates and
economic growth. The main analysis examines the relationship between corporate taxes and
GDP per capita growth. Most of these studies find significant impacts of different tax measures,
but a large impact stemming from corporate taxes. A key study was performed by Arnold in
2008, using panel data from 21 OECD countries over 35 years. Arnold controls for many other
factors affecting growth, such as the accumulation of physical and human capital, but finds that
a robust and large negative impact on growth in GDP per capita is attributable to differences in
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corporate tax rates. 48 Another study examined statutory corporate income tax rates and
economic growth across 70 countries from 1970 to 1997. 49 A critical conclusion was that a 10
percent cut in the corporate tax rate was associated with a 1 percent to 2 percent boost in
economic growth.
Corporate Income Tax Policy Simulation
In this section, we evaluate the likely economic impacts of reducing the U.S. statutory corporate
income tax rate to a level that is more competitive with other industrialized nations. We can
quantify these changes by comparing a scenario in which corporate tax rates are reduced to a
baseline economic projection in which there is no adjustment in corporate tax policy.
The corporate income tax policy simulation examined the effects of reducing the U.S. statutory
rate to the current average of OECD countries. In this scenario, the federal corporate income
tax rate was cut by 13 percentage points to 22 percent, with the reduction being phased in over
a five-year period. (We assume the average state corporate tax rate of nearly 5 percent remains
the same.) The model shows what would happen if the corporate rate is reduced by 5
percentage points in 2010, another 5 percentage points in 2012, and an additional 3 percentage
points in 2014.
Results
Our results show that a lower corporate tax rate makes the United States a more attractive
location for business investment by filtering through a reduction in the user cost of capital.
Initially, existing productive capacity in the U.S. is more heavily utilized to fulfill domestic final
demand and boost exports. In the current economic climate, with the nation just emerging from
the most severe recession since World War II, there are few capacity constraints that would
restrict production from rising to meet increased demand. However, the impacts on annual
economic growth in 2010 are not as large as in subsequent years, as it would take time for
businesses to adjust their investment and production plans.
In the tax-cut scenario, real GDP growth improves by 0.3 percentage point relative to the
baseline scenario in each year from 2011 through 2013 as the full impacts of rising business
investment, exports, production, and employment are felt. Growth in real GDP continues but
tapers off to 0.2 percentage point faster than the baseline in 2014 as the response to the 2010
and 2012 cuts in the corporate income tax rate ripples through investment and production
decisions. The difference in real GDP growth relative to the baseline rebounds to 0.3
percentage point in 2015 as the impacts from the final installment of the corporate tax cut filter
through the economy. Real GDP growth is 0.2 percentage point and 0.1 percentage point
greater than the baseline in 2016-2017 and 2018-2019, respectively, as economic growth
converges to its new long-term potential growth rate. By 2019, real GDP is higher than the
baseline by $375.5 billion, or 2.2 percent.
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Corporate income tax policy simulation

Impact on real GDP
Billions of chained 2005$ Percent
400 2.5
Absolute difference from baseline (L)
Percent difference from baseline (R)
2.0
300
1.5
200
1.0
100
0.5
0 0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Exports are the first sector that responds to the lower U.S. corporate tax rate. Existing capacity
is more heavily utilized as growth in real exports of goods and services rises 0.5 and 1.0
percentage point above the baseline scenario, respectively, in 2010 and 2011. As more capacity
is added in 2012 and beyond, annual growth in exports is generally 0.6 to 0.8 percentage point
higher than the baseline projection from 2013 through 2019. By 2019, real exports of goods and
services stand at $233.3 billion, or 7.8 percent, above the baseline projection. Exports of
computer and related equipment, other capital goods, aircraft, and industrial materials show the
greatest improvement relative to the baseline. This provides a disproportionate stimulus to
manufacturing.
Business fixed investment is the second major sector to respond to the cut in the corporate
tax rate. Domestically based firms begin to see the United States as a more attractive location
for investment, while foreign direct investment is also enhanced. Initially, investment in capital
equipment responds more quickly than structures as new projects are planned and come to
fruition. Nevertheless, growth in real business fixed investment improves 0.4 percentage point
relative to the baseline scenario in 2010. Annual growth in investment accelerates to 0.9
percentage point greater than the baseline in 2011, then fluctuates between 0.5 and 0.7
percentage point above the baseline from 2012 through 2016. Increases in investment relative
to the baseline approach their long-run equilibrium by 2017 and are generally 0.2 percentage
point greater each year. We project that real business fixed investment stands at $102.4 billion,
or 4.6 percent, above the baseline scenario by 2019. This boost to capital equipment and
structures provides a powerful stimulus to manufacturing activity as well.
In response to the simulated corporate tax rate cut, industrial production rises as higher
exports and investment cause demand for manufactured products, energy, and mining output to
increase relative to the baseline projection. The pattern of differences relative to the baseline
projection, therefore, is similar to what we see with exports and business investment. By 2019,
there is still meaningful annual growth, and overall industrial production exceeds its baseline
level by 3.9 percent.
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Impact on employment
Absolute difference from baseline, employment in millions
2.5
Non-manufacturing
Manufacturing
2.0
1.5
1.0
0.5
0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
As manufacturing output expands in our lower-tax-rate scenario, employment in the

manufacturing sector rises by a commensurate amount. Productivity growth improves relative
to the baseline, so manufacturing employment increases at a slightly slower pace. By 2019,
manufacturing employment exceeds the baseline projection by 350,000 jobs or 2.7 percent.
Total employment exceeds the baseline by 2.13 million (1.4 percent) by 2019, when it reaches
a steady state rate of advance.
Wages and incomes increase in the lower-tax-rate scenario due to higher employment and
manufacturing jobs representing a greater share of overall employment (since manufacturing
jobs pay more than the average for all industries). Wage and salary disbursements display
average annual growth of 0.6 percentage point greater than the baseline over the 10-year
period. Wages and salaries exceed the baseline scenario by $594 billion, or 6.4 percent, in
2019. Real personal income (adjusted for inflation) rises 3.0 percent above the baseline in 2019.
The federal fiscal impacts of a corporate tax rate reduction are multifaceted and dynamic with
several countervailing forces at work. The principal pathway is through corporate income and
the tax collections received by the federal government. Real before-tax corporate profits are
higher in the tax-cut scenario than in the baseline scenario due to greater production and sales
activity. After-tax corporate profits rise appreciably more than before-tax profits due to the
reduction in the tax rate. However, federal corporate tax receipts are not projected to fall as
much as the decline in statutory rates would suggest. This is because as the statutory rate
declines, the difference between the statutory and the effective rate diminishes. Resources
currently devoted to tax avoidance activities would be curtailed.
As the statutory corporate income tax rate is reduced in the three phases assumed in our study,
federal income tax collections decline in a step function manner, before higher growth and a
reduction in the gap between the effective and statutory rate bring collection back closer to the
baseline. By 2019, we project that real before-tax corporate profits exceed the baseline scenario
by $59.1 billion, and real after-tax corporate profits surpass the baseline by $151.9 billion.
Nominal federal corporate tax receipts fall $120.9 billion relative to the baseline by 2019.
However, the impact on the overall federal budget is less than the decline in corporate tax
receipts because tax collections on wages and other sources of income would rise in the face of
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greater economic growth. Our simulation of a reduced corporate income tax rate shows an
eventual federal budget deficit that exceeds the baseline scenario by $81.3 billion in 2019, but
that is a relatively modest impact compared to the advance in wages and salary disbursements
in the economy.
It is possible that federal corporate tax receipts may not fall as much as a standard
macroeconomic model might estimate, since the statutory U.S. tax rate is substantially above
the revenue-maximizing point on the Laffer curve. Several studies suggest that the revenue-
maximizing rate has declined over time, indicating that federal corporate tax collections could
improve if rates were cut to an optimizing level. 50
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Summary table
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Statutory corporate income tax rate, decimal fraction
Adjusted corporate tax level 0.35 0.30 0.30 0.25 0.25 0.22 0.22 0.22 0.22 0.22 0.22
Baseline level 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35
Difference from baseline
Absolute 0.00 -0.05 -0.05 -0.10 -0.10 -0.13 -0.13 -0.13 -0.13 -0.13 -0.13
Percent 0.0% -14.3% -14.3% -28.6% -28.6% -37.1% -37.1% -37.1% -37.1% -37.1% -37.1%
Key impacts
Ia. Real gross domestic product, US$ billions*
Adjusted corporate tax level 12,985.5 13,296.7 13,722.7 14,272.8 14,725.9 15,148.1 15,573.7 15,990.4 16,413.8 16,878.9 17,393.2
Baseline level 12,985.5 13,276.9 13,659.5 14,169.2 14,574.8 14,956.6 15,331.1 15,708.7 16,100.1 16,533.3 17,017.7
Absolute 0.0 19.8 63.2 103.7 151.1 191.5 242.7 281.6 313.7 345.6 375.5
Percent 0.0% 0.1% 0.5% 0.7% 1.0% 1.3% 1.6% 1.8% 1.9% 2.1% 2.2%
Ib. Annual real GDP growth

Adjusted corporate tax level 2.4% 3.2% 4.0% 3.2% 2.9% 2.8% 2.7% 2.6% 2.8% 3.0%
Baseline level 2.2% 2.9% 3.7% 2.9% 2.6% 2.5% 2.5% 2.5% 2.7% 2.9%
Absolute difference from baseline 0.2% 0.3% 0.3% 0.3% 0.2% 0.3% 0.2% 0.2% 0.1% 0.1%
II. Real exports of goods & services, US$ billions*

Baseline level 1,453.7 1,557.6 1,665.7 1,803.3 1,961.8 2,123.9 2,272.3 2,429.4 2,606.9 2,793.5 2,988.9
Absolute 0.0 7.9 24.4 40.6 58.9 76.7 101.9 129.1 159.2 194.8 233.3
Percent 0.0% 0.5% 1.5% 2.3% 3.0% 3.6% 4.5% 5.3% 6.1% 7.0% 7.8%
III. Real gross private fixed nonresidential investment, US$ billions*

Baseline level 1,294.1 1,299.1 1,438.2 1,640.7 1,784.1 1,869.4 1,922.7 1,976.3 2,048.3 2,133.3 2,232.2
Absolute 0.0 5.6 18.8 29.7 44.2 55.7 70.0 80.0 86.3 94.2 102.4
Percent 0.0% 0.4% 1.3% 1.8% 2.5% 3.0% 3.6% 4.0% 4.2% 4.4% 4.6%
IVa. Employment--manufacturing, millions

Baseline level 11.989 11.537 11.705 12.155 12.576 12.801 12.812 12.724 12.661 12.644 12.581
Absolute 0.00 0.00 0.05 0.12 0.17 0.20 0.23 0.26 0.28 0.31 0.35
Percent 0.0% 0.0% 0.5% 1.0% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 2.7%
IVb. Employment--total nonfarm, millions

Baseline level 131.894 130.648 132.921 136.327 139.074 140.947 142.351 143.598 144.8 146.094 147.567
Absolute 0.00 0.09 0.38 0.70 1.04 1.33 1.61 1.83 1.96 2.06 2.13
Percent 0.0% 0.1% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.4% 1.4% 1.4%
Other results
V. Industrial production index, 2002=100
Absolute 0.0 0.2 0.9 1.6 2.2 2.7 3.2 3.8 4.2 4.7 5.3
Percent 0.0% 0.2% 0.9% 1.4% 1.9% 2.3% 2.7% 3.0% 3.3% 3.6% 3.9%
VI. FY unified budget balance, US$ billions

Absolute 0.0 -42.1 -28.0 -46.3 -22.2 -29.6 -29.3 -27.4 -46.8 -64.9 -81.3
Percent 0.0% 3.1% 2.6% 5.2% 3.2% 4.2% 3.8% 3.4% 5.5% 7.1% 8.1%
* In chained 2005 dollars
Note: Num bers are rounded
Sources: Federal Reserve Bank, Internal Revenue Service, U.S. Bureau of Econom ic Analysis, U.S. Bureau of Labor Statistics, U.S. Treasury, Milken Institute.
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R&D Tax Credit
Simulation Results
• An expanded and permanent R&D tax credit encourages both U.S. and foreign-based
firms to channel more R&D activities to the United States, spurring greater
productivity and economic growth.
• In the expanded R&D tax credit scenario, real GDP growth improves by 0.2
percentage point on an annual basis from 2011 to 2013, and in 2014 and after, by 0.1
percentage point, relative to a baseline projection without a change in policy.
• After 10 years, real GDP is $206.3 billion, or 1.2 percent, above the baseline
projection in 2019.
• Investment responds to the improved U.S. competitive position. Real business fixed
investment rises 4.8 percent, or $107.3 billion, above the baseline scenario in 2019.
• Exports, especially technology-related goods and services, experience higher growth
in the expanded R&D tax credit scenario. By 2019, real exports stand at $63 billion,
or 2.1 percent, above the baseline projection.
• Industrial production exceeds the baseline scenario by 4.4 percent in 2019. Total
employment rises by 510,000 jobs (0.4 percent) above the baseline at its peak in
2017, and manufacturing employment jumps by 316,000 jobs (2.5 percent) above the
baseline in 2019.
The Importance of Innovation

As national economies transition to a post-industrial model that is based on intangibles,
knowledge-based inputs become critical factors of production that drive sustained economic
growth. 51 Today countries with consistently strong economic performance are those with
advanced technological infrastructures and efficient innovation mechanisms for production. In a
knowledge-based economy, individual income disparities become increasingly influenced by
innovation capabilities. Extrapolating this observation to a macro-societal level, innovation
becomes progressively important to market development. 52
In the early twentieth century, Schumpeter's work emphasized the role of innovation in the
creation of economic activities and societal progress. 53 Subsequent generations of economists
have also acknowledged the importance of innovation in generating economic growth. 54
Contrary to classical economic theories that posit the importance of labor and capital in
production, many developing countries with an abundant supply of workers and rising access to
capital have not attained the growth rates that were once anticipated. New Growth Theory was
introduced to explain the factors behind long-term growth in view of these new dynamics,
addressing what Castells argued was the inadequacy of traditional economic thinking to explain
some of the behavior exhibited by the post-industrial economy. 55 Under New Growth Theory,
increased investments in innovation constitute a key endogenous factor in economic
production. 56 Innovation is therefore an important engine of growth in advanced economies
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today. 57 Now this effect has become more pronounced and is a major subject of analysis in
models of sustainable economic growth. Countries must develop innovation-based production to
create broad-based economic prosperity.
Continuous Research and Development for Sustainable Growth

Sustainable growth is dependent on the ability to create an effective policy framework that can
facilitate continuous innovation, among other factors. 58 According to Bell, innovation can be
argued to be the result of research and development (R&D) activities. 59 The OECD defines
these activities as those that create knowledge or develop new applications of knowledge. 60 At
a national level, investments in R&D pave the way for innovation to be transformed into
economic growth opportunities. 61
Given the importance of innovation, one route to sustainable economic growth is the presence
and effectiveness of continuous R&D activities. Maintaining this activity at a high level requires a
strong national infrastructure—including a viable national policy framework that nurtures R&D
on an ongoing basis. This allows firms and entrepreneurs to undertake long-term projects with
greater confidence and reduced risks.
Innovation, along with entrepreneurship, involves a lengthy process of research and

development—one that inevitably entails risk for firms and industries. There are three main
categories of risk (regulatory risk, innovation risk, and monetary risk) that must be overcome in
order to create an efficient infrastructure for R&D activities.
Regulatory Risks
It is important to acknowledge that innovation is fleeting. What is groundbreaking today is less

so tomorrow, and progressively less so over time. 62 This occurs, at least in part, because the
market power accorded to the owners of the innovation is constantly pressured by new players
vying for a share of a finite pool of consumers. 63
In view of this dynamic, patent laws exist to protect these owners from unscrupulous copyright
violations. However, regulatory changes may affect the extent of protection, including the length
of time owners are protected. Long-term survival therefore depends on continuous innovation.
On a macro level, countries and regions alike must be able to generate ongoing momentum for
innovation to remain competitive in the global knowledge-based economy.
Innovation Risks
Innovation always carries with it the very real possibility of failure—but failures can sometimes
serve as catalysts for greater innovation. 64 They spur further R&D and create opportunities for
more sophisticated product and service developments. Some types of innovation, such as
medical products, require extended periods of trial and error. Entrepreneurial success may not
happen overnight.
Therefore, it is essential for countries and regions to provide a viable policy framework to
encourage continuous R&D, and hence continuous innovation, for sustainable growth.
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Entrepreneurship policies are one way to create an environment that encourages innovation.
For example, under the Manufacturing Extension Partnership, organizations were created in
every state to consolidate and share best practices among small manufacturing companies, in a
bid to develop industry linkages across the supply chains. 65
Monetary Risks
Research and development activities are typically time-consuming and resource-intensive. 66

They often require substantial capital investment—and returns may not be immediately evident
in the short term. Without the right incentives, investors may not have the patience to wait for
potential long-term gains.
A number of countries have introduced policies that encourage continued investment in selected
high-value industries. Ireland, for example, introduced these measures with an understanding of
the extended time required for positive returns on these investments. 67 The country's first
Programme for Economic Expansion, in effect from 1958 to 1963, encouraged foreign
investment in Irish industries. These and later policies ultimately paid off, but it took decades of
development before Ireland’s high-tech Celtic Tiger economy took off in the 1990s.
Encouraging Innovation through R&D Tax Credits

Research and development activities are costly, and firms must be able to project long-term
benefits to justify these costs. As discussed in the preceding section, there are risks involved in
R&D, leading to the possibility of failure and/or an extended wait before a sufficient return on
investments can be realized. While U.S. R&D tax credits remain temporary (and technically
expired again on December 31, 2009), the majority of other nations have implemented them on
a permanent basis, thus providing a firmer commitment to R&D over the long term.
Prior research has shown that lucrative reward systems and regulatory structures influence the
level of R&D activities. 68 Tax credits are one way to effectively reduce the costs of conducting
R&D. These credits encourage firms to undertake the risks involved and channel more
resources into innovation. They have especially been found to stimulate growth in industrial
R&D expenditures. 69 Extrapolating this to the national level, the creation of attractive R&D
credits can generate broad and sustainable economic growth in the long term.
This argument has been verified by extensive empirical research since the last decade. 70 Not
only is it common to find countries introducing tax incentives to support continued investments
in R&D, so as to eliminate market failures, 71 but considerable evidence also shows a positive
relationship between R&D tax credits and R&D activities. 72
Reflecting arguments in Romer's endogenous growth model, Russo simulated and compared
the impact of various investment tax credits. He showed that investment tax credits for R&D
generated the greatest positive change in R&D spending relative to other types of incentives. 73
This finding emphasizes the role R&D tax credits play in stimulating sustainable growth.
Warda examined the tax policies of 27 OECD countries. He found that in 2005, 70 percent of
them offered R&D tax incentives (only 50 percent had these policies in place in 1996). 74
Atkinson compared incentives across OECD countries and found that the United States offered
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the highest R&D tax incentives globally in the late 1980s. By 1996, however, the U.S. trailed
Spain, Australia, Canada, Denmark, the Netherlands, and France to occupy the seventh
position in terms of R&D tax credits. By 2004, the U.S. had slipped to 16th. 75 Although the
United States was the pioneer in implementing the R&D investment tax credit in 1981, most
other advanced economies have responded by implementing their own version of this policy in a
more aggressive fashion. Based on OECD calculations, the United States now ranks 17th
among members on the effective rate of the R&D tax credit. Furthermore, the U.S. has kept the
R&D tax credit “temporary” for 29 years. Coupled with the restrictions in R&D tax credit
qualifications in the U.S., many other OECD countries appear to have created a more attractive
landscape for innovation and sustainable growth.
Using a sample of 2,785 manufacturing plants in Canada, Berube and Mohnen showed that by
taking advantage of existing R&D programs, the plants enjoyed success in product innovation
and commercialization. Research and development subsidies were most effective where market
failure was the highest. 76 In another study, Klassen, Pittman, and Reed compared the impact of
tax incentives on R&D activities among firms in Canada and the United States. Similarities in
industries were taken into consideration in the selection of firms for the sample. Based on an
empirical analysis of panel data, Canadian firms spent an additional $1.30 for every tax dollar
forgone through the country's tax credit system. By contrast, the U.S. system facilitated an
additional $2.96 in R&D spending on average. 77
Further country-level evidence shows that in Australia, R&D tax incentives generated an equal
value of R&D per unit of tax expenditures. 78 A study of France showed a triple to quadruple
increase in R&D activities through tax credits. 79 Griffith, Redding, and Reenen simulated the
effects of proposed R&D tax credits in the U.K. They found that in the long term, the resultant
increase in GDP was considerably larger than the costs of the tax credits, while the short-term
impact was less evident. 80
The positive impact of R&D tax credits has been seen not only at the national level but also at
the regional and firm levels. 81 The United States is deploying R&D tax credits effectively, but it
is not offering them at the same levels as other OECD nations. With incentives in short supply, it
is not surprising that cost reduction was found to be a key factor that drives U.S. firms to shift
their R&D activities offshore. 82
Despite the economic importance of R&D tax credits, keeping them temporary in nature restricts
firms and entrepreneurs from developing accurate projections on the returns to investing in R&D
over a longer time horizon. 83 Because the nature of the investment is long-term, tax policies
must similarly take the long view to remove investor uncertainty.
R&D Tax Credit Simulation

We have evaluated the economic stimulus that would be provided by expanding the R&D
investment tax credit and making it permanent. We perform this alternative policy simulation by
utilizing the same macro-econometric model of the U.S. economy as in the corporate income
tax policy simulation. This approach captures the dynamic feedback mechanism created when
businesses increase their research and development spending (investment in innovative
activities), therefore creating new products and services; enhancing productivity growth;
expanding investment in technology-intensive capital equipment; spurring greater exports,
production, employment, and incomes; and boosting overall real GDP growth in the economy.
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We can quantify the effects by comparing a scenario in which the R&D investment tax credit is
expanded and made permanent to a baseline economic projection without an adjustment to
current policy.
This R&D tax credit policy simulation was developed by increasing the credit to 10 percent—its
level prior to the 1986 tax reform legislation—from its current 8 percent level and making it
permanent. 84 This represents a 25 percent increase in the R&D tax credit, and our simulation
assumes that it takes effect in 2010.
Results
The expanded and permanent R&D tax credit encourages U.S.-based firms to perform more
R&D activities in the United States. Additionally, it provides greater incentives for foreign-based
multinationals to channel more of their R&D investment to the United States. The resulting
stimulus to U.S. economic growth is not immediate, as firms take some time to react to the
increased R&D incentives and alter their investment plans.
During the first year of our scenario, research and development by industry increases by a
marginal amount, but by the second year (2011) of implementation, we see a meaningful
response. This higher growth path is maintained through 2014, before it reaches a long-term
equilibrium slightly above the baseline projection. It is important to note that in the macro-
econometric model, growth in total factor productivity (not accounted for by any of the factor
inputs directly) is largely determined by the stock of R&D capital available in the economy.
Additionally, manufacturing industries such as pharmaceuticals, semiconductors, medical
equipment, and computers are among the leaders in amounts of research and development
funding and relative to sales (R&D intensity).
R&D tax credit permanent and increased by 25 percent policy simulation

Impact on real GDP
250 1.4
Percent difference from baseline (R) 1.2
200
1.0
150
0.8
0.6
100
0.4
50
0.2
0 0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
With the expanded tax credit, real research and development spending by industry
improves on an annual basis by 0.5, 1.0, and 0.9 percentage point in 2010, 2011, and 2012,
respectively, relative to the baseline projection. After 2012, industry-funded R&D grows
approximately 0.2 percentage point faster than the baseline on an annual average basis. By
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2019, real R&D spending by industry is 3.8 percent above the baseline. Growth in real GDP is
0.2 percentage point above the baseline from 2011 through 2013 as higher investment and
gains in exports of capital spur growth, in addition to higher productivity growth. In 2014 and
after, real GDP growth in the expanded tax credit scenario is roughly 0.1 percentage point
above the baseline. After 10 years, real GDP is above the baseline by 1.2 percent or $206.3
billion. Productivity growth, as measured by an index of output per hour in the nonfarm
business sector, is nearly 0.1 percentage point greater on average in the years 2010 through
2019 with the expanded tax credit in place, leaving it 1.0 percent above the baseline projection
by 2019.
In the expanded R&D tax credit scenario, investment in equipment and structures responds to
improved U.S. competitiveness attributable to greater R&D investment and innovation. Higher
R&D investment improves the quality of new capital goods and reduces their prices relative to
the baseline. As output increases, the need to expand productive capacity provides another
dynamic feedback to capital equipment investment. Real business fixed investment rises 0.4
percentage point faster than the baseline in 2010, but accelerates by another 1.0 percentage
point above the baseline in 2011. In 2012, annual growth in real investment is 0.9 percentage
point in excess of the baseline, before tapering off to 0.7 percentage point greater than the
baseline in 2013. Growth in investment is around 0.5 percentage point above the baseline
during 2014-2017, before diminishing to 0.2 percentage point above it during the last two years
of the simulation. By 2019, real investment is 4.8 percent or $107.3 billion above the baseline
projection.
With the expanded R&D tax credit, U.S. exports experience greater growth as the
competitiveness of our information and communication technologies and other technology-
intensive capital equipment and products improves relative to that in other advanced industrial
economies. The United States gains market share for exports of these goods to both developing
and industrialized nations. Higher R&D investment results in better-quality capital equipment
and more competitive prices due to productivity enhancements. In the expanded tax credit
scenario, real exports of goods and services increase by 0.1 percentage point more than the
baseline in 2010, but witness a 0.6 percentage point acceleration in growth above the baseline
in 2011 and 2012, before annual growth tapers off to 0.2 percentage point on average
thereafter. Real exports stand $63 billion (2.1 percent) above the baseline by 2019.
Manufacturing activity receives a huge boost in the R&D investment tax credit simulation. The
two primary sources of stimulus emanate from the large gains in investment in capital
equipment and higher merchandise exports. Since much of the growth in exports is
concentrated in machinery, equipment, and information and communication technologies,
manufacturing is a prime beneficiary. Industrial production increases modestly at first in this
scenario, but the annual growth rate rises 0.5, 0.8 and 0.7 percentage point faster in 2011,
2012, and 2013, respectively, relative to the baseline. Growth in industrial production
decelerates in 2014 and beyond somewhat relative to the baseline but averages 0.4 percentage
point annually. In 2019, industrial production is 4.4 percent above the baseline projection.
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0.60
Non-manufacturing
Manufacturing
0.50
0.40
0.30
0.20
0.10
0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
With the expansion of production in manufacturing, firms respond by adding to their payrolls and
increasing investment in workforce training. Manufacturing employment doesn’t rise as fast as
production due to greater increases in productivity, but substantial gains are experienced in
order to meet higher output levels. By 2019, manufacturing employment in the expanded
R&D tax credit scenario is 316,000 or 2.5 percent above the baseline. Total employment peaks
in 2017 at 510,000 jobs (0.4 percent) above the baseline scenario. Manufacturing accounts for
62 percent of the total gain in employment relative to the baseline.
Real personal income growth averages just over 0.1 percentage point more than the baseline
over the 10-year period. By 2019, real personal income is $161.6 billion (1.1 percent) greater
than the baseline. The federal budget deficit shrinks relative to the baseline projections as
economic growth accelerates and improves income tax revenue, outweighing the reduction in
the corporate tax receipts caused by the expanded R&D tax credit. By 2019, the federal budget
deficit is $22.7 billion lower than in the baseline scenario. Therefore, the expansion in the R&D
investment tax credit propels economic growth while improving the nation’s fiscal health.
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Summary table
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Marginal rate of investment tax credit on R&D, decimal fraction
Expanded R&D tax credit level 0.08 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10
Baseline level 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08
Absolute 0.00 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02
Percent 0.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Real R&D spending funded by industry, US$ billions*

Baseline level 223.99 222.02 226.79 237.17 251.75 262.06 270.88 279.42 289.18 300.08 311.62
Absolute 0.00 1.07 3.48 5.61 7.06 6.92 7.69 8.58 9.66 10.84 11.92
Percent 0.0% 0.5% 1.5% 2.4% 2.8% 2.6% 2.8% 3.1% 3.3% 3.6% 3.8%
Key impacts
Expanded R&D tax credit level 12,985.5 13,282.7 13,690.3 14,232.7 14,666.2 15,071.4 15,465.2 15,865.3 16,279.0 16,727.6 17,224.1
Baseline level 12,985.5 13,276.9 13,659.5 14,169.2 14,574.8 14,956.6 15,331.1 15,708.7 16,100.1 16,533.3 17,017.7
Absolute 0.0 5.7 30.7 63.5 91.4 114.8 134.1 156.6 179.0 194.3 206.3
Percent 0.0% 0.0% 0.2% 0.4% 0.6% 0.8% 0.9% 1.0% 1.1% 1.2% 1.2%

Expanded R&D tax credit level 2.3% 3.1% 4.0% 3.0% 2.8% 2.6% 2.6% 2.6% 2.8% 3.0%
Baseline level 2.2% 2.9% 3.7% 2.9% 2.6% 2.5% 2.5% 2.5% 2.7% 2.9%

Baseline level 1,453.7 1,557.6 1,665.7 1,803.3 1,961.8 2,123.9 2,272.3 2,429.4 2,606.9 2,793.5 2,988.9
Absolute 0.0 1.5 11.3 23.8 34.4 43.4 51.1 56.9 60.8 62.7 63.0
Percent 0.0% 0.1% 0.7% 1.3% 1.8% 2.0% 2.2% 2.3% 2.3% 2.2% 2.1%

Baseline level 1,294.1 1,299.1 1,438.2 1,640.7 1,784.1 1,869.4 1,922.7 1,976.3 2,048.3 2,133.3 2,232.2
Absolute 0.0 5.3 19.9 37.8 53.1 66.3 78.0 90.4 103.7 114.6 107.3
Percent 0.0% 0.4% 1.4% 2.3% 3.0% 3.5% 4.1% 4.6% 5.1% 5.4% 4.8%

Baseline level 11.989 11.537 11.705 12.155 12.576 12.801 12.812 12.724 12.661 12.644 12.581
Absolute 0.00 0.00 0.01 0.07 0.14 0.17 0.20 0.22 0.25 0.26 0.32
Percent 0.0% 0.0% 0.1% 0.6% 1.1% 1.4% 1.5% 1.7% 1.9% 2.0% 2.5%

Baseline level 131.894 130.648 132.921 136.327 139.074 140.947 142.351 143.598 144.800 146.094 147.567
Absolute 0.00 0.03 0.14 0.31 0.42 0.45 0.42 0.46 0.51 0.49 0.44
Percent 0.0% 0.0% 0.1% 0.2% 0.3% 0.3% 0.3% 0.3% 0.4% 0.3% 0.3%
Other results
Absolute 0.0 0.1 0.6 1.5 2.4 3.1 3.7 4.3 4.9 5.4 6.0
Percent 0.0% 0.1% 0.6% 1.4% 2.1% 2.6% 3.0% 3.4% 3.8% 4.1% 4.4%

Absolute 0.0 0.7 6.8 23.1 38.8 47.2 47.3 40.3 33.7 28.2 22.7
Percent 0.0% -0.1% -0.6% -2.6% -5.6% -6.7% -6.1% -5.1% -4.0% -3.1% -2.3%
Note: Numbers are rounded
Sources: Federal Reserve Bank, Internal Revenue Service, National Science Foundation, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics, U.S. Treasury, Milken Institute.
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Export Controls
Simulation Results
• Modernizing U.S. export controls on commercially available technology products with

some countries would produce higher export growth in the future, particularly in the
high-value-added areas in which the United States excels.
• If this policy were implemented in 2010, the most rapid period of export growth (0.2 to
0.3 percentage point on an annual basis) relative to a baseline scenario with no policy
change occurs from 2011 through 2016. After that, export growth relative to that in
the baseline moderates to 0.1 percent. Real exports are $56.6 billion (1.9 percent)
higher than the baseline in 2019.
• Real GDP rises by $64.2 billion (0.4 percent) relative to the baseline projection in
2019.
• Investment activity responds to the higher rate of export growth. Real business fixed
investment grows faster than the baseline over the next decade and is $18.7 billion
(0.8 percent) above the baseline scenario in 2019.
• In the policy change scenario, industrial production exceeds the baseline by 1.5
percent in 2019, while total employment increases by 340,000 jobs (0.2 percent) and
manufacturing employment rises by 160,000 jobs (1.2 percent).
U.S. Policy on Export Controls

Globalization has ushered in enormous opportunities for exporting countries to take advantage
of vast, previously untapped markets. Although the United States generally has open policies in
place regarding exports of merchandise, the nation has, for legitimate national security reasons,
placed export controls on certain dual-use goods and sensitive technologies that raise concerns
about nuclear proliferation, terrorism, or other threats to U.S. national security. While security
will always remain paramount, there is growing debate about whether the United States should
modernize its export control regime to address 21st-century security and economic realities.
Proponents of modernization argue that the United States would gain through:
• Greater exports of widely available technology to countries around the globe

• Increasing technology exports that build strong linkages with user nations,
creating a positive feedback loop
• Maintaining a competitive edge in the world market through multilateral trade
agreements rather than unilateral trade agreements
A Brief History of U.S. Export Control Policies

Export controls were established to protect national security and prevent countries of concern
from gaining access to sensitive technologies. Restrictions on certain goods and certain
countries have been in effect since the beginning of the 20th century. In 1940, Congress gave
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the president authority to control exports of arms and “militarily significant” goods and
technologies. After World War II, U.S. export control policy aimed at national security included
“conserving supplies of critical materials, rather than in strategic, ideological, or other terms.” 85
The Export Control Act of 1949 (eventually superseded by the Export Administration Act of
1969) established that export restrictions could be imposed due to a range of national security
threats (including regional stability, human rights, anti-terrorism efforts, and non-proliferation of
nuclear, missile, chemical, and biological warfare capabilities). 86 The primary objective of the
Export Control Act came to focus on delaying improvements in Warsaw Pact (and Chinese)
military capabilities that could be accomplished or facilitated through the acquisition of Western
technology and end products. 87 This ushered in an era of rewriting the Export Administration Act
of 1969 several times before it finally expired in 1989. Today the EAA is in effect through the
president’s powers under the International Emergency Economic Powers Act (IEEPA).
Selected Components of Export Control Policies at Present

At present, the U.S. Bureau of Industry and Security (BIS) maintains the Commerce Control List
(CCL), a list of goods that require a license for export or re-export. This list of sensitive exports
includes telecommunications and advanced electronic equipment, precision machine tools,
guidance technology, aerospace and jet engine technology, synthetic materials, and specialized
manufacturing and testing equipment (including mixers, high-temperature ovens, and heat and
vibration stimulators). 88 The main purpose of maintaining this list is to control the availability of
sensitive goods and technologies to countries that might pose a threat to national security,
increase proliferation and regional instability, or support terrorism.
With this objective in mind, foreign countries are divided into five groups (Country Groups A, B,
C, D, and E, with sub-groups) for export purposes. It is possible for the same country to overlap
into more than one group.
Country Group B, for example, includes trading partners that are deemed friendly nations. 89
These countries are exempt from license requirement for certain CCL goods, but for this group
of nations in particular, there is a great deal of room to improve the ease of trade, possibly by
creating license-free zones or allowing easier intra-company transfers from branches of firms in
unrestricted zones to branches in Country Group B. Falling near the other end of the spectrum
is Country Group D-1, a list of countries for which trade is tightly controlled. 90 Approval from the
BIS is necessary for all exports to these nations.
One of the main concerns for the United States has always been the risk of nuclear and other
arms proliferation. The 1991 Enhanced Proliferation Control Initiative (EPCI) was enacted to
control those risks. 91 It denies licenses to certain entities in countries such as Russia, China,
Pakistan, India, and Israel.
Licenses to export items controlled for national security purposes are reviewed on a case-by-
case basis. The licensing review takes place with the input of the U.S. Commerce and State
departments. But applications require cumbersome paperwork, and the process does not easily
accommodate advances in technology and any update on dual-use items by other countries. 92
Modernizing license requirements and increasing multilateral trade agreements are possible
steps that might be beneficial.
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Motivated by concerns surrounding the export of sensitive technologies, the United States has a
long history of entering multilateral trade agreements, dating to the establishment of the
Coordinating Committee for Multilateral Export Controls (CoCom) in 1949. 93 This was an
informal forum associated with NATO to coordinate national export control policies and review
potential exports to the Soviet Union and other destinations.
In the mid-1990s, CoCom was replaced by the Wassenaar Arrangement on export controls for
conventional arms and dual-use goods and technologies. It is one of the multilateral export
control regimes in which the United States participates. Its purpose is to “contribute to regional
and international security and stability by promoting transparency and greater responsibility in
transfers of conventional arms and dual-use (i.e., those having civilian and military uses) goods
and technologies to prevent destabilizing accumulations of those items.” 94
Moreover, the United States has been a member of the Missile Technology Control Regime
(MTCR) since its inception in 1987. 95 The focus of the MTCR is to limit proliferation of missiles
capable of delivering weapons of mass destruction. Initially, the MTCR consisted of just seven
members, but it has now grown to include 34 member countries that have agreed to coordinate
their national export controls to stem missile proliferation. At present, the latitude afforded to
member countries to exercise their own discretion sometimes undermines the intent of such
trade agreements.
Export Controls and Investments in R&D
Proponents of modernization argue that “many current controls (outside of narrowly defined
military niches) aimed at protecting national security harm U.S. innovation and competitiveness
in global markets, thereby reducing economic prosperity, which is an essential element of U.S.
national security.” 96 The logic is that if the United States will not supply the desired technology,
some other country will.
As other countries trade technologies, a strong bond develops between users and producers. 97
This leads to more R&D spending in both the exporting and the importing nations. As a
producer country gains market share for goods and technology, it invests further in R&D and
technological innovations. On the other hand, demand for a particular good makes the user
country more aware of the need to produce similar goods. 98 This leads to the user country also
investing more in R&D. In either case, both parties gain.
If the United States maintains its current export control policies on technology transfer, other
countries will jump in and seize the opportunity, reaping the gains from strong export linkages.
The end-user nation has not been prevented from receiving the technology in question, and the
U.S. eventually sees its technological competitiveness in the world market diminish. Therefore
there has been pressure to revise U.S export policies to improve trade performance—and doing
so in a way that allows the United States to remain a leader in technological innovation without
jeopardizing its national security.
Room to Grow Potential Export Markets: An Example

To see how export controls affect U.S. manufacturers, it is useful to consider China as a specific
example, though the issue pertains to many nations. Thirty years ago, China was poor and
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isolated. But now that it has opened its economy to the outside world, other countries are
clamoring to tap the vast potential market it represents. Japan, the Republic of Korea, and
European Union countries are taking advantage of U.S. export control policies and increasing
their exports to China. As expert testimony before the U.S.-China Economic and Security
Review Commission once put it, denying China the import of certain goods from the United
States never cost China anything—but the U.S. lost a huge potential market. 99
Trade value of electronic integrated circuits and micro-assemblies
China and world, 2008

China's imports World imports
Amount Share Share
(US$ billions) (percent) (percent)
World 130.8* 100 100**
Leading exporting countries
United States 7.3 5.6 11.0**
Chinese Taipei 29.5 22.6 10.6
Republic of Korea 23.0 17.6 14.0
Japan 14.2 10.9 8.7
Malaysia 12.9 9.9 1.6
Philippines 12.0 9.2 3.6
Singapore 3.8 2.9 16.7
Thailand 2.8 2.1 1.9
Costa Rica 2.2 1.7 0.3
Hong Kong 1.8 1.4 11.7
Germany 1.3 1.0 3.5
* China's share of w orld imports w as 30.4 percent.
** Total w orld imports w ere US$430.2 billion.
*** Total U.S. exports w ere US$41.94 billion.
Sources: International Trade Centre, U.N. Comtrade.
Electronic integrated circuits and micro-assemblies offer just one example of technology
products that fall under export control. In 2008, China imported $130.8 billion, or 30.4 percent of
all world imports, of these items. The following table shows that China imported most of these
products from Taiwan, the Republic of Korea, Japan, and other countries; just 5.6 percent of
Chinese imports of these goods were from the United States. Although Japan accounted for 8.7
percent of total world exports of these products, as compared to 11 percent for the United
States, its exports to China were nearly double those sold by the United States.
If the United States enacts more focused controls, it can capture a greater share of this potential
$130.8 billion Chinese market.
Similar comparisons also hold true for other products in which EU countries are taking
advantage of U.S. trade policy by selling to U.S.-restricted countries and increasing their market
shares. Since the recipient nations are able to obtain this technology elsewhere, U.S. policy is
not effective—it simply prevents American firms from accessing new markets.
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Simulation: Modernization of Export Controls on Commercially

Available Products
In this alternative policy simulation, we assess the possible economic impacts of modernizing
export controls on commercially available technology products for a representative group of
countries with windows for increasing exports. While it is certainly in the best interests of the
United States to restrict the sale of nuclear and other sensitive military technologies for national
security purposes, it is not in our best interest to disallow the export of technology products that
are legally available from other advanced and NATO member nations. We provide an estimate
of how much U.S. exports to a representative group of nations might increase if reasonable
reforms were implemented. 100
Groups of technology products

Product label Product code
Nuclear reactors, boilers, machinery, etc. 84
Electrical, electronic equipment 85
Aircraft, spacecraft, and parts thereof 88
Optical, photo, technical, medical, etc. apparatus 90
Sources: International Trade Center, U.N. Comtrade.
Utilizing data from the International Trade Centre and the United Nations, we calculated the
U.S. share of exports of commercially available technology products to this representative group
relative to its share of the world markets for those same products. In developing this alternative
policy simulation, we assume that a modernization of export controls would narrow the gap
between U.S. market share in these nations and its share in the total world market by 50
percent. We evaluate the likely impact of a policy change relative to a baseline economic
projection that assumes no alteration in export control policy, utilizing the same macro-
econometric model as in the corporate tax rate and R&D investment tax credit simulations.
It is important to understand that the trade volumes and values for licensed exports are not the
best indicators for determining the impact of modernization on future exports for two reasons.
First, many U.S. firms don’t bother to submit applications under the Export Administration Act
for export licenses because they know they will not be approved or processed in a timely
manner. Second, U.S. firms have lost significant business opportunities as other countries
have designed out U.S. parts and components due to the nation’s export control system.
Results
If export controls on commercially available technology products were modernized in 2010, the
most rapid period of U.S. export growth would occur between 2011 and 2016. Our simulation
shows that export growth slows relative to a baseline scenario with no policy change after 2016
but still remains on a higher-trajectory path thereafter. Growth in real exports of goods and
services is 0.2 to 0.3 percentage point higher on an average annual basis relative to the
baseline projection through 2016. After 2016, export growth relative to that in the baseline
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scenario generally moderates to 0.1 percentage point. Real exports of goods and services are
$56.6 billion (1.9 percent) higher than in the baseline projection by 2019. The trade balance
improves as well, but imports accelerate, reacting to higher U.S. investment and consumption.
Modernizing export controls on commercially available

technology products policy simulation
Impact on real GDP
70 0.4
Percent difference from baseline (R)
60
0.3
50
40
0.2
30
20
0.1
10
0 0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
In the policy-adjustment scenario, investment activity responds to the higher rate of export
growth as additions to capacity become necessary to meet higher production levels. Investment
in capital equipment posts the largest gains. Real business fixed investment grows annually
at slightly less than 0.1 percentage point faster than the baseline level per year over the next
decade, and in 2019, is $18.7 billion (0.8 percent) above the baseline projection.
Modernizing export controls on commercially available

technology products policy simulation
0.35
Non-manufacturing
Manufacturing
0.30
0.25
0.20
0.15
0.10
0.05
0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
The manufacturing sector is the primary beneficiary of expanded exports and capital
equipment investment if export controls are revised. Industrial production increases 1.5 percent
relative to the baseline projection by 2019. Manufacturing adds 160,000 jobs in 2019 relative to
the baseline projection. Overall, total employment in the relaxed export control scenario is
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340,000 higher than the baseline projection in 2019. Real personal income and real GDP rise
by $55.2 billion and $64.2 billion, respectively, relative to the baseline in 2019. Additionally, the
federal budget deficit improves by $15.8 billion in 2019 due to the increased economic activity.
Modernizing export controls on commercially available technology products policy simulation

Summary table
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Key impacts
Modernizing export controls level 12,985.5 13,281.4 13,675.3 14,194.5 14,608.5 14,997.1 15,377.4 15,760.7 16,156.6 16,593.6 17,082.0
Baseline level 12,985.5 13,276.9 13,659.5 14,169.2 14,574.8 14,956.6 15,331.1 15,708.7 16,100.1 16,533.3 17,017.7
Absolute 0.0 4.5 15.8 25.3 33.7 40.6 46.3 52.0 56.6 60.3 64.2
Percent 0.0% 0.0% 0.1% 0.2% 0.2% 0.3% 0.3% 0.3% 0.4% 0.4% 0.4%

Modernizing export controls level 2.3% 3.0% 3.8% 2.9% 2.7% 2.5% 2.5% 2.5% 2.7% 2.9%
Baseline level 2.2% 2.9% 3.7% 2.9% 2.6% 2.5% 2.5% 2.5% 2.7% 2.9%

Baseline level 1,453.7 1,557.6 1,665.7 1,803.3 1,961.8 2,123.9 2,272.3 2,429.4 2,606.9 2,793.5 2,988.9
Absolute 0.0 2.6 8.2 13.4 18.8 24.0 29.5 35.7 42.1 48.8 56.6
Percent 0.0% 0.2% 0.5% 0.7% 1.0% 1.1% 1.3% 1.5% 1.6% 1.7% 1.9%

Baseline level 1,294.1 1,299.1 1,438.2 1,640.7 1,784.1 1,869.4 1,922.7 1,976.3 2,048.3 2,133.3 2,232.2
Absolute 0.0 1.8 6.8 9.9 11.8 13.3 14.4 15.7 16.8 17.7 18.7
Percent 0.0% 0.1% 0.5% 0.6% 0.7% 0.7% 0.8% 0.8% 0.8% 0.8% 0.8%

Modernizing export controls level 11.989 11.541 11.725 12.200 12.641 12.879 12.902 12.828 12.782 12.781 12.737
Baseline level 11.989 11.537 11.705 12.155 12.576 12.801 12.812 12.724 12.661 12.644 12.581
Absolute 0.00 0.00 0.02 0.04 0.06 0.08 0.09 0.10 0.12 0.14 0.16
Percent 0.0% 0.0% 0.2% 0.4% 0.5% 0.6% 0.7% 0.8% 1.0% 1.1% 1.2%

Modernizing export controls level 131.894 130.668 133.010 136.492 139.300 141.213 142.643 143.911 145.127 146.428 147.903
Baseline level 131.894 130.648 132.921 136.327 139.074 140.947 142.351 143.598 144.800 146.094 147.567
Absolute 0.00 0.02 0.09 0.16 0.23 0.27 0.29 0.31 0.33 0.33 0.34
Percent 0.0% 0.0% 0.1% 0.1% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
Other results
Absolute 0.0 0.1 0.3 0.6 0.8 0.9 1.1 1.3 1.5 1.8 2.0
Percent 0.0% 0.1% 0.3% 0.5% 0.7% 0.8% 0.9% 1.1% 1.2% 1.3% 1.5%

Absolute 0.0 0.7 4.6 9.8 14.2 16.6 16.7 15.6 15.4 15.4 15.8
Percent 0.0% -0.1% -0.4% -1.1% -2.0% -2.3% -2.2% -2.0% -1.8% -1.7% -1.6%
Note: Numbers are rounded
Sources: Federal Reserve Bank, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics, U.S. Treasury, Milken Institute.
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Infrastructure Impacts
As 2010 began, the United States was grappling with a 10 percent unemployment rate, the
highest since the early 1980s, 101 coupled with a conservative lending atmosphere 102 and the
ongoing migration of jobs overseas. In this environment, government intervention may be
necessary to stimulate job growth and to prevent further layoffs.
With this in mind, we set out to determine the potential effects of various infrastructure
investments on the job market, choosing 10 projects for study. The selected projects are high-
impact investments in both high-growth and traditional industries that provide high-paying jobs,
offering the most advantageous platform for sustainable development. All 10 projects fall under
the broad themes of public safety, competitive transportation, and energy security, which is
particularly crucial for the United States. The Energy Information Administration projects that
U.S. energy demand will increase by 5.6 percent in the next 10 years, while demand from
export giants like China is projected to increase by 37.6 percent. With such great demand,
scarcity coupled with competition will push prices higher. 103 Energy security will be a key factor
in achieving continued economic prosperity for Americans.
The 10 projects are also “public goods”—transportation projects, a smart electric grid—that
require government intervention because consumers cannot fully bear the true cost of
consumption. While critics of federal funding contend that it crowds out private investment,
federal intervention can help nascent technologies mature, allowing them to become viable
enough to attract private investment on their own. Federal investment in riskier ventures such as
renewable energy and nuclear power also tells investors that policymakers are committed to a
technology that may require government subsidies or help with land acquisitions in order to be
competitive and ameliorate financial risk. In addition, public funding can send the markets a
strong signal of political support that could eventually lead to less restrictive permitting and
licensing and to new tax incentives, price guarantees, and non-pecuniary backing that attract
even more private investment.
The current investments in these 10 projects will produce high job growth in both the short and
long term, which is reflected in our analysis of employment and output, aimed at determining the
total impact on an industry. Ongoing infrastructure funding could go a long way toward providing
energy security and an efficient transportation network that facilitates trade and public safety.
Background and Methodology

Infrastructure investment can have significant impacts on economic vitality, creating
opportunities for existing businesses, while incentivizing new firms and entrepreneurs. Whether
creating economic linkages across regions through construction of new highways and bridges or
decreasing energy costs by deploying more energy-efficient technologies, infrastructure
investments are critical to economic development and the nation’s ability to compete in the 21st
century.
Typically, infrastructure development involves at least two phases: a project’s construction and
its design and planning, normally captured within research and development services.
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Construction is divided into three main categories: construction of buildings, heavy and civil
engineering construction, and specialty trade contractors. Building construction includes
residential and nonresidential construction of projects such as single-family homes, factories,
and office high-rises. Heavy and civil engineering construction encompasses initiatives such as
highways and utility systems. Finally, specialty trade contractors handle painting, electrical work,
or other specific construction activities that usually are subcontracted through general
contractors.
While many of the infrastructure projects we will discuss involve some type of construction, it is
important to note how they differ. Variations in the requirements of the underlying production
process are reflected in the many subsectors of heavy and civil engineering construction. 104
Similarly, subsectors within specialty trade contractors represent unique areas of specialization.
The types of machinery and equipment used can also differ substantially across subsectors. In
addition, the skills required and the wages paid can vary significantly depending on the type of
construction involved. For example, skilled underwater engineers are likely to be paid much
more than a drywall installer working on a single-family home.
To capture the extent of an industry’s economic impact, the Bureau of Economic Analysis (BEA)
assigns unique coefficients, known as multipliers, to specific industries. Derived from the BEA’s
RIMS II, economic multipliers shed light on inter-industry relationships. 105,106 More specifically,
they help illustrate how investments made in one sector can immediately stimulate related
sectors. Multipliers enable us to quantify how an industry’s employment, earnings, and output
ripple through other economic sectors. For instance, the building of new dams, can have
significant implications for various manufacturing components and can lead to increased
economic activity across a number of other sectors. In this section, we will use those multipliers
to examine how specific infrastructure investments will benefit various sectors of the U.S.
economy, both directly and indirectly.
In determining which multipliers to use, we examined program descriptions for the 10 projects to
determine the primary nature of the work involved. Multipliers were then applied to the proposed
investment funding amounts, which were based on recent funding allocation and industry
knowledge. 107 The proposed investment funding was derived from various sources—
congressional reports, industry analysts, academia, the National Association of Manufacturers
(NAM), and the Milken Institute. This funding also reflects various incentives and public-private
partnerships.
The proposed investments mentioned in this section draw from a mixture of industry estimates
and legislation currently being discussed. The 10 projects studied serve as a basis for dialogue
on the economic impact of new funding, using recent funding allocations as a model for how
new investments might be distributed. 108 We feel this framework best represents how new
injections would be invested. Although realistically, new funding may not go to the exact same
programs as in the past, the allocation and end use should be the same. It is the information on
end use and program type that is inputted into our model. The Milken Institute collected these
proposals and analyzed their economic impact on an individual project basis so that
policymakers can make informed decisions about where to allocate resources.
Certain infrastructure projects, such as building a smart grid or constructing inland waterways,
require an extensive production infrastructure and a large proportion of highly skilled and
specialized labor. With this need comes demand for supply-related goods and services. The
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cumulative employment and earnings generated by all this tightly interconnected activity ripples
throughout the economy. Spending by engineers, contractors, and researchers boosts the
income of business professionals, restaurant workers, retail clerks, and real estate agents, who
then plow that extra income back into the local economy. Through these greater purchases of
goods and services, wealth is created and sustained.
The following pie chart shows the distribution of jobs required to support a $1 million investment
in the construction sector. While the primary or direct impact would occur in the construction
sector, the economic ripple effects mean that 9 percent of the total impact would be created in
manufacturing industries and 6 percent in professional and scientific services. These jobs,
unlike some of the construction-related occupations, could become permanent, providing the
potential for longer-term sustainability and enabling many parts of the country to expand their
technology base.
Economic activity generated by construction

Distribution of jobs across all sectors
Transportation
and warehousing Real estate
3% 2%
Other
services Other
Administrative 4% 7%
services
5% Construction
Finance and 34%
insurance
5%
Trade
Health care 12%
Professional and 7%
scientific services
6%
Accommodation
6%
Manufacturing
9%
In summary, our analysis uses the following key assumptions:
• These 10 projects were chosen because they affect energy security or involve
infrastructure upgrades and expansion, which create the type of high-value jobs that
bolster the economy.
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• The report analyzes the impact of additional proposed investments using a framework
based on recent funding allocations and industry knowledge.
• The proposed investment funding was derived from various sources, including
congressional reports, industry analysts, academia, the National Association of
Manufacturers (NAM), and the Milken Institute. These funds also reflect various
incentives and public-private partnerships. These new investments would be in addition
to recent funding.
• Proposed investment funding is computed over a three-year period to focus on near-

term job creation and economic impacts.
• The Milken Institute uses the Regional Input-Output Modeling System (RIMS II) from the
Bureau of Economic Activity (BEA) to compute the economic and employment impact of
the allotted and proposed investments. For example, highway expansion mainly involves
construction, so the BEA multiplier for construction was applied to those funding
amounts. Indirect employment effects capture byproducts such as manufacturing, the
wholesale and retail trade, and a broad array of material suppliers.
• Program descriptions from the federal government and trade groups provided the
classification details used in the application of BEA multipliers.
• The model assumes that proposed funding will follow the same allocation priorities as
recently passed legislation. The assumption is that each agency recognizes and
prioritizes allocation funding based on need. We then base our multiplier application on
those funded programs to gain insight into broader effects of the 10 projects.
Projects and Impacts

The proposed investments we studied amount to $425.6 billion across all 10 projects. Highway
and transit projects account for just over half the total investment pool. Investments in
broadband infrastructure and onshore and offshore oil exploration account for the next-largest
investment amounts.
All the projects combined will create more than 3.4 million construction- and R&D-related jobs,
which will generate an estimated $147 billion in earnings. Accounting for ripple effects across
other sectors, the total impact will be more than 10.6 million jobs, $420 billion in earnings, and
approximately $1.4 trillion in output. Because these impacts will likely be spread across a three-
year period, the average annual increase would be 3.5 million jobs and $468 billion in output.
Given that the U.S. economy has lost more than 7.2 million jobs since December 2007, these
investments would provide immediate relief and help restore the national employment base in
the short term.
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Summary of economic impacts by project

(2010-2012)

Project (US$B) (# jobs) (US$B) (# jobs) (US$B) (US$B)
Highway and Transit System 225.0 2,106,914 85.8 6,189,480 238.2 775.4
Broadband Infrastructure 55.0 293,736 15.1 1,048,064 43.9 158.3
Onshore Exploration and Development/Offshore Drilling 46.5 194,844 9.9 896,185 38.8 145.0
Drinking Water and Wastewater Infrastructure 30.0 280,922 11.4 825,264 31.8 103.4
Sustainability Projects: Smart Grid 24.0 219,578 9.1 649,627 25.1 82.0
Nuclear Energy 15.0 139,145 6.1 397,271 15.6 48.7
Sustainability: Renewables (Solar, Wind, Biofuel) 14.5 115,874 4.8 337,558 13.1 44.3
NextGen 10.4 30,631 2.7 181,921 8.9 32.1
Inland Waterways 2.6 23,951 1.1 67,100 2.7 8.1
Sustainability Projects: Clean Coal Technology 2.55 24,018 1.1 66,127 2.6 7.9
Total of all Projects 425.6 3,429,612 147.1 10,658,597 420.6 1,405.3
For example, total employment translates to an average annual of 3.5 million jobs per year.
Average output per employee stemming from the total impacts from all projects amounts to
about $132,000. By way of comparison, output per employee in 2009 across all non-farm
sectors was slightly more than $108,000. 109 The additional output per employee generated
through these infrastructure projects reflects the valuable nature of such activity, the quality of
the jobs that would be generated, and the incremental wealth that would be created. Average
wages across these projects would amount to $43,000 annually—substantially more than the
current average annual wage of $30,500 across all private, service-providing sectors. 110
In addition, for every dollar invested in these projects, an additional $2.30 111 would be
generated across all sectors.
Because most of the investments would be injected directly into the construction industry, some
of the direct impacts may be short-lived as the initial investment dries up. But the indirect
impacts would provide other sectors with a tremendous boost. Manufacturing, services, and
trade, all of which support various construction activities, would have the opportunity to
capitalize on the investments. Support from the private sector could sustain these jobs over the
long run and perhaps until the next innovation cycle.
Highway and Transit

Investing in transportation infrastructure is vitally important: It boosts commerce, increases
public safety, and enhances quality of life across the socioeconomic spectrum. But its
contributions are broad and difficult to quantify, making infrastructure investment a public good
that calls for government intervention. Public infrastructure requires federal support specifically
because it is capital intensive, and transportation systems cannot be financially supported by
states and cities alone.
Recognizing that, Congress created the Highway Trust Fund in 1956, using federal fuel taxes to
help build and maintain the Interstate Highway System. However, the system is antiquated and
not easily adaptable to the changes in demand and technology. 112 For example, the technology
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responsible for the growth in hybrid car sales 113 will distort the road usage data that is gathered
to justify funding the Highway Trust Fund. Add to that the fact that more than 20 percent of the
nation’s bridges are rated structurally deficient and functionally obsolete and it is clear that a
better funding solution is imperative. 114
There is also interest in extending federal assistance to improve the surface transportation
network. 115 Improvements to the freight and passenger rail infrastructure, for example, would
increase accessibility to various markets and could revitalize certain areas while offering an
environmentally conscious option akin to car-pool lanes. Continued funding of the federal
Transportation Generating Economic Recovery (TIGER) grant 116 for such issues as bridge
construction, port infrastructure investments, and passenger and freight rail projects has also
been brought before key congressional decisionmakers. 117
A proposed $225 billion investment as part of a multi-year surface transportation authorization is

under consideration, with the majority of the funds allocated for construction. 118 The direct
impacts of that investment would total more than 2.1 million construction-related jobs and
almost $86 billion in earnings. When the broader economic ripple effects are considered, the
total impact will be nearly 6.2 million jobs and more than $238 billion in earnings and $775
billion in output. That is, for every $1 billion invested in highway and transit, more than 27,400
jobs are created across all sectors. Assuming the impacts of a $225 billion investment occur
over a three-year period, the average increase would be about 2 million jobs per year.
Economic impacts of highway and transit investment

(2010-2012)

Program (US$B) (# jobs) (US$B) (# jobs) (US$B) (US$B)
Federal Highway Administration 165.8 1,552,938 63.2 4,562,066 175.6 571.6
Federal Transit Administration 50.7 474,352 19.3 1,393,504 53.6 174.6
Surface Transportation Network 8.5 79,623 3.2 233,910 9.0 29.3
Total Highway and Transit System 225.0 2,106,914 85.8 6,189,480 238.2 775.4
For example, total employment translates to an average annual of 2,060,000 jobs per year.
Contractors would require various raw materials such as asphalt, cement, and metals as well as
the production of commercial and industrial equipment, boosting economic activity in such
sectors as manufacturing, trade, and mining. Specialty trades and various engineering
occupations would also benefit.
From 2007 to 2009, the subsector of highway and bridge construction lost 46,000 jobs—over 13
percent of its employment base. A boost in infrastructure spending would help revitalize the
industry and create additional economic benefits across the nation. Additionally, highway and
transit investments would decrease transportation costs, lead to improved productivity among
businesses, and better link regional economies across the nation.
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Inland Waterways
The nation’s inland waterways are part of the nation’s infrastructure for moving goods, and they
require federal assistance for maintainance and improvements. They encompass over 8,200
miles of major river systems 119 that connect the Gulf of Mexico with the agriculturally rich
Midwest and manufacturing hubs in the Southeast and the Great Lakes. Current projects
include development in the Pacific Northwest; however, the Mississippi River system and its
tributaries are the busiest and most expansive network of lock-and-dam infrastructure. 120 Inland
waterway projects under construction or almost ready to begin construction will require
approximately $7 billion to complete. 121 The U.S. Army Corps of Engineers is responsible for
constructing, modernizing, and maintaining these waterways.
Construction and maintenance of dams and waterways for freight transportation have
historically been neglected and underfunded. The Corps of Engineers has a $60 billion project
backlog. 122 In addition to hampering trade by limiting cargo size and freight passage, 123
underinvestment in public works has had major public safety ramifications, often negatively
amplifying natural disasters, as was the case with the levees that failed during Hurricane Katrina
in 2005.
The direct impacts of a $2.6 billion investment would consist of nearly 24,000 construction- and
R&D-related jobs and $1.1 billion in earnings. Ripple effects increase the total impacts to more
than 67,000 jobs, $2.7 billion in earnings, and $8.1 billion in output. In other words, every $1
billion invested in inland waterways creates more than 25,800 jobs across all sectors. Assuming
that the impacts of the total proposed investment occur over three years, the average annual
increase would be about 22,300 jobs.
Economic impacts of inland waterway investment

(2010-2012)
US Army Corps of Engineers Civil Works Program 2.01 18550 0.84 52068 2.1 6.3
Mississippi River and Tributaries account 0.19 1,734 0.07 5,094 0.2 0.6
Maritime Administration 0.05 462 0.02 1,358 0.1 0.2
Corps of Engineers
(environmental restoration and flood protection, etc) 0.35 3,205 0.16 8,580 0.3 1.0
Total Inland Waterways 2.6 23,951 1.1 67,100 2.7 8.1
For example, total employment translates to an average annual of 22,300 jobs per year.
Renewable Energy
Renewable energy (including wind, solar, biomass, hydroelectric, biofuels, and geothermal)
represents just 7 percent of the total U.S. energy portfolio 124 despite a dramatic surge in biofuel
and wind energy production from 2000 to 2007 (roughly 300 percent and 500 percent,
respectively). 125 The issue now is to increase production volume to commercially viable,
meaningful levels and connect this new generation to the current transmission system. Both
hurdles require government assistance in the form of R&D funding for basic research,
production subsidies, capital backing for infrastructure, or price guarantees.
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While the world has expanded its renewable energy portfolio, the United States has lagged
behind, but the investment focus has now turned inward as domestic consumer preferences and
carbon tracking gain traction. Our technology is ready to seize this opportunity as
semiconductors and imaging technology cross over almost seamlessly into fields like solar
photovoltaic construction. 126 This wave can help revitalize the economy, converting stagnant
high-tech industries previously focused on defense work into growth fields focused on clean
tech.
Presently, Senator Jeff Bingaman (D-NM) is working to craft energy legislation that would not
only increase Department of Energy project funding by $8 billion but would also double applied
energy research to $6.5 billion. Of this $14.5 billion investment, nearly one-third is expected to
go toward construction. Another third would likely go toward R&D, with the remainder spent in
various manufacturing industries. The direct impacts would total nearly 116,000 jobs related to
construction, R&D, and manufacturing and $4.8 billion in earnings. The economic ripple effects
increase the total impacts to more than 337,000 jobs, $13.1 billion in earnings, and $44.3 billion
in output. So for every $1 billion invested in renewables, nearly 23,300 jobs are created across
all sectors. If the impacts of the total proposed investment occur over three years, the average
annual growth would be approximately 112,500 jobs per year.
Construction of alternative energy structures that can generate and transmit wind and solar
power has a higher economic impact than construction in general. Building power and
communication lines and related structures requires skilled, high-value labor from various
specialty occupations, and those architects and engineers require additional services and
assistance, creating yet more jobs.
From 2007 to 2009, the subsector of power and communication lines construction lost nearly
19,000 jobs, or 13 percent of its job base. During that same period, the industry as a whole lost
more than 1.3 million jobs—a drop of nearly 18 percent. Investing in renewable energy could
help lessen our reliance on traditional forms of energy and create hundreds of thousands of
“green” jobs in the process.
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Economic impacts of renewable energy investment

(2010-2012)
Program (US$M) (# jobs) (US$M) (# jobs) (US$M) (US$M)
Modify Integrated Biorefinery Solicitation Program
for Pilot and Demonstration Scale Biorefineries 353.4 3309 134.8 9722 374 1218
Commercial Scale Biorefinery Projects 129.9 1217 49.6 3575 138 448
Fundamental Research in Key Program Areas 79.2 888 33.0 1976 71 211
Management and Oversight (EE Program Direction) 59.4 899 24.9 1816 56 165
Advanced Building Systems 72.0 654 32.4 1751 71 205
Residential Buildings
(Building America, Builders' Challenge, and Existing Home Retrofits) 50.5 567 21.1 1262 45 135
National Accounts Acceleration in Support
of the Commercial Buildings Initiative 38.6 362 14.7 1063 41 133
Buildings and Appliance Market Transformation 53.6 502 20.4 1474 57 185
Solid State Lighting 36.1 405 15.1 901 32 96
Community Renewable Energy Deployment 16.3 182 6.8 406 15 43
Integrated Biorefinery Research Expansion 10.0 91 4.5 242 10 28
Renewable Energy and Supporting Site Infrastructure 64.4 585 29.0 1566 64 183
Lab Call for Facilities and Equipment 77.8 706 35.0 1891 77 221
NWTC Upgrades 7.4 67 3.3 180 7 21
Enhance and Accelerate FEMP Service Functions to the Federal Government 12.6 114 5.6 305 12 36
Energy, Water & Emissions Reporting and Tracking System 4.1 46 1.7 101 4 11
Geothermal Demonstrations 102.2 928 46.0 2483 101 290
EGS Technology R&D 57.5 522 25.9 1398 57 163
Validation of Innovative Exploration Technologies 73.7 826 30.7 1839 66 197
National Geothermal Database, Resource Assessment
and Classification System 21.6 203 8.3 595 23 75
Ground Source Heat Pumps 37.0 105 5.6 652 28 120
Enabling Fuel Cell Market Transformation 31.9 299 12.2 878 34 110
Combined Heat and Power (CHP), District Energy Systems, Waste Heat
Recovery Implementation and Deployment of Efficient Industrial Equipment 114.7 163 16.3 1169 57 259
Improved Energy Efficiency for Information and
Communication Technology 36.1 328 16.2 878 36 103
Industrial Assessment Centers and Plant Best Practices 7.4 83 3.1 185 7 20
Advanced Materials RD&D in Support of EERE Needs to Advance
Clean Energy Technologies and Energy-Intensive Process R&D 36.0 404 15.0 898 32 96
EE Conservation Block Grant Program 2,364.9 26527 986.1 59047 2127 6318
Weatherization Assistance Program 3,695.2 34602 1409.3 101651 3912 12735
State Energy Program 2,291.0 6519 347.7 40404 1727 7425
EE Appliance Rebate Programs 221.7 631 33.7 3910 167 719
Weatherization Innovation Pilot Program 18.5 207 7.7 461 17 49
Concentrating Solar Power 18.9 172 8.5 460 19 54
PV Systems Development 37.4 340 16.8 910 37 106
High-Penetration Solar Deployment 29.8 270 13.4 724 29 85
Wind Energy Technology R&D and Testing 10.3 94 4.6 251 10 29
Battery Manufacturing 1,478.1 3522 190.3 20687 892 4079
Transportation Electrification 295.6 2768 112.7 8132 313 1019
Clean Cities AFV Grant Program 221.7 2076 84.6 6099 235 764
Commercial Vehicle Integration (SuperTruck) and
Advanced Combustion Engine R&D 83.4 935 34.8 2082 75 223
Investigation of intermediate ethanol blends, optimization
of E-85 engines, and development of transportation infrastructure 14.7 138 5.6 405 16 51
Wind Turbine Drivetrain Testing Facility 33.2 310 12.6 912 35 114
Large Wind Turbine Blade Testing Facility 18.4 173 7.0 507 20 63
Wind Energy Consortia between Institutions of
Higher Learning and Industry 17.5 197 7.3 438 16 47
Hydroelectric Facility Modernization Program 23.5 220 9.0 647 25 81
DOE Innovative Technology Loan Guarantee Program 1,485.5 16663 619.4 37090 1336 3969
Job Training for High Growth Fields (green industries) 557.1 5056 250.5 13536 551 1583
Total Sustainability: Renewables (Solar, Wind, Biofuel) 14,500.0 115,874 4,773 337,558 13,073 44,286
Smart Grid
A smart grid is a coordinated network that controls the flow of electricity, matching the type of
need with the correct premium in order to curtail demand and incentivize customers to waste
less during peak usage periods. It involves overseeing transmission and distribution grids and
modernizing infrastructure. Globally, governments and companies are expected to invest $200
billion in smart grid technologies from 2008 to 2015. 127
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The Electric Power Research Institute estimates the total bill for U.S. smart grid construction
over the next two decades at $165 billion—roughly $8 billion annually. Of the proposed $24
billion investment that falls within our three-year window, 94 percent would go toward
construction, with the remaining to be spent in the planning and design phase. The direct
impacts include more than 219,000 jobs in construction, R&D, and manufacturing, and nearly
$9.1 billion in earnings. The ripple effects bring the total impacts to almost 650,000 jobs, $25.1
billion in earnings, and $82 billion in output. For every $1 billion invested in the smart grid, more
than 27,000 jobs are created across all sectors. Assuming a three-year span, the average
increase generated by the total proposed investment would be about 216,500 jobs per year.
Construction of smart grid infrastructure would yield higher economic benefits than the typical
construction project. As with renewable energy, construction of smart grid structures would
require highly skilled labor from various architectural and engineering occupations.
A $24 billion investment in smart-grid technology will quickly revitalize employment in

construction—where more than 1.3 million jobs were lost from 2007 to 2009—and R&D-related
fields.
Economic impacts of smart-grid investment

(2010-2012)
Grant: Local Energy Assurance Planning Initiative 3.9 35 1.8 94.9 3.9 11.1
Grant: Science: Small Business Innovation Research Phase I 13.8 125 6.2 334.3 13.6 39.1
Grant: Enhancing State Government Energy Assurance Capabilities
and Planning for Smart Grid Resiliency (Non-Competitive Formula Grants) 14.9 135 6.7 361.4 14.7 42.3
Grant: State Electricity Regulators Assistance
(Non-Competitive Formula Grants) 17.1 155 7.7 415.6 16.9 48.6
Grant: Resource Assessment and Interconnection-Level
Transmission Analysis and Planning 22.3 202 10.0 542.0 22.1 63.4
Grant: Workforce Training For The Electric Power Sector 53.5 486 24.1 1,300.9 53.0 152.1
Grant: Request for Information:
Advanced Research Projects Agency - Energy (Round II) 148.7 1,350 67 3,614 147 423
Grant: Advanced Research Projects Agency - Energy 148.7 1,350 67 3,614 147 423
Grant: Smart Grid Demonstrations 228.7 2,075 103 5,556 226 650
Treasury: Advanced Energy Manufacturing Tax Credit (48 C) 855.1 3,035 178 15,030 670 2,655
Grant: Smart Grid Investment Grant Program 1264.1 11,837 482 34,774 1,338 4,357
Loan Guarantee: 1703: Innovative Energy Efficiency, Renewable Energy and
Advanced Transmission and Distribution Technologies (2009) 3160.2 29,592 1,205 86,934 3,346 10,891
Loan Guarantee: 1705: Advanced Transmission and Distribution Technologies 18069.0 169,199 6,891 497,057 19,130 62,273
Total Sustainability Projects: Smart Grid 24,000 219,578 9,050 649,627 25,128 82,027
Nuclear Energy
Nuclear energy has been a reliable power source for many developed countries. 128 Currently,
5.9 percent of the world’s electricity is derived from nuclear plants. 129 In 2008, the United States
produced 8.5 quadrillion Btu, or about 21 percent of the nation’s electricity, from nuclear power.
The electric power sector is the nation’s largest consumer of energy (40.1 percent), followed by
transportation (27.8 percent), industrial (20.6 percent), and residential/commercial (10.8
percent). 130
Nuclear energy prices are more stable than those of other sources and cheaper than coal,
natural gas, and biomass. 131 Also, safety has improved significantly since the Three Mile Island
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nuclear accident in 1979 when equipment malfunctions and worker errors led to a partial
meltdown at the Pennsylvania plant. 132 However, building a nuclear plant requires huge fixed
costs up front for infrastructure as well as long-term political support. Warming-up costs also
make this technology inflexible to being turned on and off intermittently. Regulatory turbulence
or delays in approval during plant construction can cause labor costs to mushroom and add a
hefty premium to construction. 133 But with the nation’s population growth and its need for
cleaner energy alternatives, nuclear is a viable option that would address clean energy, energy
security, and the creation of high-value manufacturing and construction jobs that are immune to
outsourcing. 134
Economic impacts of nuclear energy investment

(2010-2012)
PHENIX Silicon Vertex MIE full funding (RHIC at BNL) 0.6 5 0.26 14 0.6 1.6
PHENIX Forward Vertex Detector MIE full funding (RHIC at BNL) 4.6 42 2.07 112 4.6 13.1
Enhanced AIP funding at NP user facilities 57.5 522 25.86 1,398 56.9 163.4
Enhanced utilization of Isotope facilities 23.0 209 10.35 559 22.8 65.4
TJNAF Infrastructure Investments 23.0 209 10.35 559 22.8 65.4
Nuclear Data Program Initiative 4.5 41 2.01 109 4.4 12.7
Lattice Quantum ChromoDynamics Computing 11.4 104 5.14 278 11.3 32.5
Nuclear Science Workforce 44.7 406 20.11 1,087 44.2 127.1
R&D on Alternative Isotope Production Techniques 10.6 96 4.78 258 10.5 30.2
DIII-D Facility Upgrades 27.0 245 12.13 742 28.6 93.0
Alcator C-Mod Facility Upgrades (MIT) 11.4 107 4.35 314 12.1 39.3
NSTX Facility Upgrades 16.2 152 6.17 445 17.1 55.8
Enhanced operation of Major Fusion Facilities 11.3 102 5.07 274 11.2 32.0
PPPL GPP 11.5 108 4.39 316 12.2 39.6
High Energy Density Laboratory Plasma, Matter in
Extreme Conditions (MEC) Instrument Project 45.9 417 20.66 1,116 45.5 130.6
High Energy Density Laboratory Plasma, NDCX-II 25.3 230 11.38 615 25.0 71.9
Infrastructure Improvements for Innovative
Confinement Concepts (ICC) Experiments 11.2 105 4.27 308 11.9 38.6
Plasma Science Centers 22.3 250 9.30 557 20.1 59.6
Infrastructure Improvements for General Plasma Science User Facilities 8.9 84 3.41 246 9.5 30.8
SLI Construction 249.7 2,338 95.23 6,869 264.4 860.6
General Plant Project funding across all SC laboratories 206.1 1,930 78.59 5,668 218.2 710.2
OSTI Technology Infrastructure 3.7 34 1.40 101 3.9 12.7
Energy Sciences Fellowships and Early Career Awards 224.3 2,036 100.88 5,451 221.9 637.4
SBIR/STTR 133.0 1,207 59.79 3,231 131.6 377.8
Management and Oversight (SC Program Direction) 9.2 103 3.84 230 8.3 24.6
Office of Environmental Management (DOE) 13,803.1 128,064 5,547 366,414 14,326 45,066
Total Nuclear Energy 15,000 139,145 6,049 397,271 15,546 48,792
The Clean Energy Act of 2009, S. 2776, introduced by Senators Lamar Alexander (R-TN) and
Jim Webb (D-VA), proposes roughly $100 billion in investment over the next 20 years for
nuclear production, or “mini-Manhattan Projects.” Using our model to frame this investment, of
the proposed $15 billion in investments that would occur in the next three years, 95 percent is
expected to go toward construction, with the remainder spent in the planning and design phase.
The direct impacts will consist of more than 139,000 construction-related jobs, which will
produce $6.0 billion in earnings. Accounting for the ripple effects, the total impacts will result in
more than 397,000 jobs, $15.5 billion in earnings, and $48.8 billion in output. Every $1 billion
invested in nuclear energy creates more than 26,400 jobs across all sectors. Assuming the
impacts of a $15 billion investment would occur over three years, the average annual increase
would be approximately 132,000 jobs.
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Nuclear power plant construction typically involves a higher concentration of high-skilled labor,
drawing on specialty contractors, architects, and engineers. Again, projects that support higher-
than-average wages help create wealth and contribute to more economic activity.
Clean Coal Technology

Generating over 50 percent of electric power, coal continues to be a primary energy source for
the United States despite claims that renewables are the next frontier. 135 Federal investment in
clean coal technology takes into account the public goods issue of carbon emissions and air
pollution, and it supports carbon capture and sequestration technology.
Analysts at the American Coalition for Clean Coal Electricity recently estimated that deploying a
cost-effective, near zero-emissions coal technology would cost as much as $17 billion from
2006 to 2025.
In the next three years, that proposed investment would be $2.6 billion, nearly 70 percent of
which would likely go to planning and design and the remainder to construction projects. The
direct effects would consist of over 24,000 R&D and construction jobs and $1.1 billion in
earnings. Accounting for the broader economic ripple effects, the total impacts will be more than
66,000 jobs, $2.6 billion in earnings, and nearly $8 billion in output. So every $1 billion invested
in clean coal technology creates 26,000 jobs across all sectors. Over three years, an annual
average of about 22,000 jobs would be created.
Economic impacts of clean coal technology investment

(2010-2012)

Carbon Capture and Storage 0.8 7,023 0.3 20,632 0.8 2.6
Industrial Carbon Capture and Storage Applications 1.1 10,333 0.5 27,661 1.1 3.2
Expand and Extend Clean Coal Power Initiative Round III 0.6 5,446 0.3 14,579 0.6 1.7
Geologic Sequestration Site Characterization 0.04 331 0.016 886 0.04 0.10
Geologic Sequestration Training and Research Grant Program 0.015 136 0.007 364 0.01 0.04
Program Direction - Fossil Energy (FE) 0.008 68 0.003 182 0.01 0.02
Innovative Materials & Processes for Advanced
Carbon Capture Technology, IMPACCT (DOE's ARPA) 0.1 681 0.034 1,822 0.1 0.2
Total Sustainability Projects: Clean Coal Technology 2.6 24,018 1.1 66,127 2.6 7.9
Much of the planning and design phase would involve architectural and engineering services as
well as energy-related consulting. These professionals generally have extensive engineering
backgrounds and/or degrees of specialization, and command above-average wages.
Offshore Drilling and Onshore Exploration and Development,

Including Oil Shale
The United States seeks to enhance its energy security through offshore drilling within its
territory and domestic shale exploration. The latter has been helped significantly by a new
technology called “hydraulic fracturing,” which injects high-pressure liquids into shale
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formations, fracturing reservoirs in order to release natural gas deposits caught in rock. Large
deposits of rich organic shale in Utah, Texas, and the Appalachian area are currently being
developed. An estimated 237.7 trillion cubic feet of natural gas and 21.3 billion barrels of oil are
situated in the United States. 136
In the current policy climate, exploration is often hindered by state and federal regulations. A
conservative investment of $46.5 billion in the exploration and development of oil and gas wells,
mine shafts, and offshore construction would be a step toward an energy security initiative that
embraces policy investment and incentives. 137 The potential employment and output effects are
staggering.
The entire $46.5 billion investment would go toward drilling oil and gas wells. The direct impacts
will consist of almost 195,000 oil- and gas-related jobs and $9.9 billion in earnings. Including the
ripple effects, the total impacts would be more than 896,000 jobs, $38.8 billion in earnings, and
nearly $145 billion in output. For every $1 billion investment in onshore exploration and
development and offshore drilling, more than 19,200 jobs are created across all sectors. If the
impacts occurred over three years, the average increase generated by the proposed investment
would be approximately 298,700 jobs each year.
Economic impacts of onshore exploration/offshore drilling investment

(2010-2012)

Onshore Exploration and Development/Offshore Drilling* 46.5 194,844 9.9 896,185 38.8 145.0
Total Onshore Exploration and Development/Offshore Drilling 46.5 194,844 9.9 896,185 38.8 145.0
*Investment amount based on historical trends (Additional funds have yet to be proposed)
Occupations in the industry consist mainly of contractors specializing in drilling. While the direct
impact of 195,000 jobs seems low, given the invested amount, the indirect impacts of drilling
activities are among the highest. For every job created within the subsector, an additional 3.5
jobs are created in other sectors. Other support activities for oil and gas operation may also
benefit, and increased demand for related professional and businesses services may be
created.
Broadband
The National Broadband Plan under consideration at the Federal Communications Commission
estimates that it would take $20 billion to bring Internet speeds to 0.768–3 Mbps and an
additional $35 billion to upgrade to the next rung of 3-10 Mbps. The project would affect an
estimated 10 million to 16 million American consumers by expanding fiber cables and increasing
capacity.
Increasing accessibility and speed to this level has many possible beneficial impacts across a
wide spectrum of the population, but it is vitally important to rural areas. Broadband would
generate more economic opportunities. Additional broadband funding would provide
construction jobs and allow companies based in those regions to expand globally, creating more
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jobs through use of the network. Remote areas, with their competitive labor costs, could
successfully vie for new call centers, for example. But federal support is necessary to increase
broadband deployment to rural areas because the cost of building the physical infrastructure is
the primary reason there is currently such limited capacity. 138
Based on our model’s framework, nearly one-third of the proposed $55 billion investment would
likely go toward construction, with the remainder spent on telecommunications services. The
direct impacts are estimated at more than 293,000 construction- and telecommunications-
related jobs and nearly $15.1 billion in earnings. Ripple effects bring the total impacts to more
than 1 million jobs, nearly $44 billion in earnings, and $158.3 billion in output. For every $1
billion investment in broadband, more than 19,000 jobs are created across all sectors.
Assuming the impacts would occur over three years, the average annual increase in jobs
created by the proposed investment would be approximately 349,300.
Economic impacts of broadband investment

(2010-2012)
National Telecommunications and Information Administration 34.2 114,660 7.6 509,159 22.9 88.9
Dept of Agriculture's Rural Utilities Service 18.2 170,538 6.9 500,988 19.3 62.8
NTIA/FCC 2.5 8,539 0.6 37,916 1.7 6.6
Total Broadband Infrastructure 55.0 293,736 15.1 1,048,064 43.9 158.3
While the installation of equipment and structures draws on the construction sector, the
operation, maintenance and transmission of such services rests with the telecommunications
sector and its major players. The installation of complex technology components and services
requires a heavier concentration of knowledge-based workers, so wages are typically higher
than average.
In the long run, broadband investments will lead to increased forms of productivity among
businesses, improving speed and connectivity across the nation.
NextGen Air Transportation System

The proposed Next Generation Air Transportation System (NextGen) seeks to transform the
nation’s existing ground-based technology for air-traffic control to a more flexible satellite-based
technology that will modernize air safety, reduce environmental impacts, ease user access to
the National Airspace System, and increase capacity and efficiency. 139 NextGen consists of
programs that help with flight and flow management, aeronautical information management, and
weather data dissemination. 140 While much of this involves retraining personnel, new
manufacturing of more advanced systems and parts will also be required, as will construction at
airports. Some aspects of NextGen are being rolled out incrementally at present, but the full
benefits of NextGen are not expected to fully accrue until 2025. Deploying more advanced
technology more quickly would not only have positive economic ramifications but would also
improve overall public safety.
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A proposed $10.4 billion investment would likely be allocated across the aerospace product and
parts manufacturing. Investment would stream from an anticipated jobs bill in the Senate, a
Federal Aviation Administration reauthorization, and fiscal year 2010 appropriations to the FAA.
The direct impacts would be more than 30,000 aerospace manufacturing-related jobs and $2.7
billion in earnings. With ripple effects, the total impacts would result in almost 182,000 jobs, $8.9
billion in earnings, and nearly $32.1 billion in output. Every $1 billion investment in NextGen
creates nearly 17,500 jobs across all sectors. The proposed investment would generate
approximately 60,600 jobs annually over three years.
Economic impacts of NextGen investment

(2010-2012)
Next Generation Air Transportation System (NextGen) 10.4 30,631 2.7 181,921 8.9 32.1
Total NextGen 10.4 30,631 2.7 181,921 8.9 32.1
The direct impact would be immediately felt in aerospace product and parts manufacturing. The
industry tends to employ a higher concentration of high-skilled labor and pays above-average
wages. A job created within the aerospace and parts manufacturing industry, on average, can
create six additional jobs in other sectors. The industry relies on an extensive value chain that
stimulates many other manufacturing industries.
Drinking and Wastewater Infrastructure

Clean drinking water is basically a public safety issue. The American Recovery and
Reinvestment Act (ARRA) puts $4 billion into the Clean Water State Revolving Fund program,
which finances high-priority wastewater infrastructure projects and loans to help municipalities,
communities, farmers, homeowners, small businesses, and nonprofit organizations oversee
nonpoint source pollution control and watershed and estuary management. 141 An additional $2
billion has been diverted to a Drinking Water State Revolving Fund program that installs,
upgrades, or replaces the nation’s water system infrastructure. 142 Aging facilities are a
contamination threat to public health.
The Environmental Protection Agency (EPA) estimates a potential gap in infrastructure

investment of $150 billion to $400 billion over the next decade. Using these EPA statistics, the
U.S. Government Accountability Office has funded research on how to address this shortfall and
close the margin by $10 billion annually. 143 In the next three years, $30 billion would be
required.
Nearly half of the proposed $30 billion investment would be allocated for construction, with the
remainder spent in the planning and design phase. The direct impacts would consist of more
than 280,000 construction- and R&D-related jobs and $11.4 billion in earnings. With ripple
effects, the total impacts will result in more than 825,000 jobs, $31.8 billion in earnings, and over
$103 billion in output. For every $1 billion invested in drinking water infrastructure, over 27,500
jobs are created across all sectors. Over three years, the proposed $30 billion investment would
generate approximately 275,000 jobs annually.
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Economic impacts of drinking and wastewater infrastructure investment

(2010-2012)

Clean Water State Revolving Loan Fund - I 14.8 138,727 5.7 407,538 15.7 51.1
Safe Drinking Water Act State Revolving Fund - I 7.4 69,363 2.8 203,769 7.8 25.5
Clean Water State Revolving Loan Fund - II 3.7 34,682 1.4 101,884 3.9 12.8
Safe Drinking Water Act State Revolving Fund - II 3.7 34,682 1.4 101,884 3.9 12.8
Bureau of Reclamation -improve drinking water 0.4 3,468 0.1 10,188 0.4 1.3
Total Drinking Water and Wastewater Infrastructure 30.0 280,922 11.4 825,264 31.8 103.4
Construction of water lines, sewer lines, and related structures in the subsector would benefit
most directly. The subsector lost nearly 36,000 jobs from 2007 to 2009, a decline of 17 percent.
Investment injected directly into this particular area can have huge economic and
socioeconomic benefits.
Projects can vary from the creation of sewer and water distribution lines to the construction of
new water treatment facilities. The work involves skilled labor and relies heavily on various R&D
services, such as architectural and engineering services, where wages are substantially higher
than the industry average.
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Endnotes
1
Committee on Science, Security, and Prosperity; Committee on Scientific Communication and National
Security; National Research Council, Beyond Fortress America: National Security Controls on Science
and Technology in a Globalized World (National Academies Press, 2009). Available for download at
http://books.nap.edu/catalog.php?record_id=12567.
2
American Society of Civil Engineers, “Report Card for America’s Infrastructure 2009,”
http://www.infrastructurereportcard.org/
3
The exception is offshore/onshore drilling, where in the absence of agency information, industry trends
were applied.
4
Output per employee statistics are calculated from Bureau of Economic Analysis’ output data and the
Bureau of Labor Statistics’ employment numbers.
5
Figure based on 2009 BLS CES survey (average weekly earnings of production workers).
6
($1,405.3 billion/$425.6 billion) minus the initial dollar invested.
7
American Society of Civil Engineers, “Report Card for America’s Infrastructure 2009,”
http://www.infrastructurereportcard.org/
8
U.S. Bureau of Labor Statistics
9
Congressional Budget Office, “The Economic and Budget Outlook”, November 24, 2009.
10
Executive Office of the President, “A Framework for Revitalizing American Manufacturing”, December
2009.
11
Milken Institute, “Manufacturing 2.0: A More Prosperous California”, June 2009.
12
The Manufacturing Institute, “The Facts About Modern Manufacturing”, 8th Edition, October 2009.
13
Battelle/R&D Magazine, “Global 2010 R&D Funding Forecast”, December 2009.
14
National Science Foundation/Division of Science Resources Statistics, Survey of Industrial Research
and Development: 2007.
15
Remarks by Jeffrey R. Immelt, Chief Executive Officer, General Electric, Detroit Economic Club, June
26, 2009.
16
Ross DeVol, “The New Economics of Place,” Milken Institute Review (First quarter, 2002).
17
IHS Global Insight Model of the U.S. Economy: The Model’s Theoretical Position, Client Confidential
(November 2009).
18
OECD, Fundamental Reform of Corporate Income Tax, OECD Tax Policy Studies (2007b),
http://www.oecd.org/document/53/0,3343,en_2649_34533_39663797_1_1_1_1,00.html.
19
KPMG’s Corporate and Indirect Tax Rate Survey 2009, available for download at
http://www.kpmg.com.sg/publications/Tax_CorporateIndirectTaxRateSurvey.pdf.
20
Robert D. Atkinson, “Effective Corporate Tax Reform in the Global Innovation Economy,” The
Information Technology & Innovation Foundation (July 2009), pp. 4 and 5,
http://www.itif.org/files/090723_CorpTax.pdf.
21
Jon Bakija and Joel Slemrod, Taxing Ourselves: A Citizen’s Guide to the Debate over Taxes
(Cambridge, MA: MIT Press, 2004).
22
Bureau of Economic Analysis, U.S. Department of Commerce, National Income and Product Accounts,
March 2009.
23
Chris Edwards, “The U.S. Corporate Tax and the Global Economy,” CATO Institute Tax & Budget
Bulletin (No. 18, September 2003), p. 2, http://www.cato.org/pubs/tbb/tbb-0309-18.pdf.
24
Robert E. Hall and Dale W. Jorgenson, “Tax Policy and Investment Behavior,” American Economic
Review (Vol. 57, June 1967), pp.391-414, http://www.stanford.edu/~rehall/Tax-Policy-AER-June-
1967.pdf.
25
Douglas Holtz-Eakin, “Corporate Income Tax Rates: International Comparisons,” Congressional Budget
Office, (November 2005), pp. 2 and 3, http://www.cbo.gov/ftpdocs/69xx/doc6902/11-28-CorporateTax.pdf.
26
Nariman Behravesh, Spin-Free Economics: A No-Nonsense, Nonpartisan Guide to Today’s Global
Economic Debates (New York: McGraw Hill, 2009), pp. 220–222.
27
Austan Goolsbee, “Taxes, Organizational Form, and the Deadweight Loss of Corporate Income Tax,”
Journal of Public Economics (Vol. 69, Issue 1, July 1998), pp. 143–152.
55
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28
Cato Handbook for Policymakers, Chapter 42, International Tax Competition (CATO Institute, 7th
Edition, 2009), pp. 434-436, http://www.cato.org/pubs/handbook/hb111/hb111-42.pdf.
29
Michael P. Devereux and Rachel Griffith, “Evaluating Tax Policy for Location Decisions,” International
Tax and Public Finance (No. 10, 2003), pp. 107–126,
http://www.springerlink.com/content/m6hr2347vr0l6500/.
30
Alan J. Auerbach, Michael P. Devereux, and Helen Simpson, “Taxing Corporate Income,” National
Bureau of Economic Research, Working Paper No. 14494 (November 2008),
http://papers.nber.org/papers/w14494.pdf?new_window=1.
31
All of the international rate-cut figures cited in this section are drawn from KPMG’s Corporate and Tax
Rate Survey 2009, available for download at
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/KPMG-Corporate-
Indirect-Tax-Rate-Survey-2009.pdf.
32
Wall Street Journal, “We’re Number One, Alas” (editorial, July 13, 2007),
http://online.wsj.com/article/SB118428874152665452.html.
33
Dale Jorgenson, “Capital Theory and Investment Behavior,” American Economic Review (Vol. 53:2, May
1963), pp. 247-259, http://links.jstor.org/sici?sici=0002-
8282%28196305%2953%3A2%3C247%3ACTAIB%3E2.0.CO%3B2-J.
34
Simeon Djankov, Tim Ganser, Caralee McLiesh, Rita Ramalho, and Andrei Shleifer, “The Effect of
Corporate Taxes on Investment and Entrepreneurship,” National Bureau of Economic Research, Working
Paper No. 13756, January 2008, http://www.nber.org/papers/w13756.
35
Lawrence Summers, “Taxation and Corporate Investment: A q-Theory Approach,” Brookings Papers on
Economic Activity (1, 1981), pp. 67-127, http://www.nber.org/papers/w0604.
36
Martin Feldstein, Louis Dicks-Mireaux, and James Poterba, “The Effective Tax Rate and the Pretax
Rate of Return,” Journal of Public Economics (21:2, 1983), pp. 129–158.
37
Alan Auerbach, “Corporate Taxation in the United States,” Brookings Papers on Economic Activity (2,
1983), pp. 451–513.
38
Mervyn King and Don Fullerton, The Taxation of Income from Capital (Chicago: University of Chicago
Press for NBER, 1984).
39
Joel Slemrod, “Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-
Country Comparison” in Assaf Razin and Joel Slemrod, Taxation in the Global Economy (Chicago:
University of Chicago Press, 1990), pp. 79–111.
40
Alan Auerbach and Kevin Hassett, “Tax Policy and Business Fixed Investment in the United States,”
Journal of Public Economics (No. 47:2, 1992), pp. 141–170.
41
Mihir A. Desai, C. Fritz Foley, and James R. Hines, “Domestic Effects of Foreign Activities of U.S.
Multinationals,” American Economic Journal: Economic Policy (Vol. 1:1, February 2009), pp. 181–203,
http://www.atypon-link.com/AEAP/doi/abs/10.1257/pol.1.1.181.
42
Johannes Becker, Clemens Fuest, and Nadine Riedel, “Corporate Tax Effects on the Quality and
Quantity of FDI,” Centre for Business Taxation, University of Oxford, working paper, May 2009.
43
Axel Borsch-Supan, “Capital’s Contribution to Productivity and the Nature of Competition,” Brookings
Papers on Economic Activity (Microeconomics, 1998), pp. 205–244.
44
Cyrille Schwellnus and Jens Arnold, “Do Corporate Taxes Reduce Productivity and Investment at the
Firm Level?,” OECD Economics Department Working Paper No. 641, September 2008,
http://www.olis.oecd.org/olis/2008doc.nsf/LinkTo/NT00005AD2/$FILE/JT03251567.PDF.
45
Laura Vartia, “How Do Taxes Affect Investment and Productivity? An Industry-Level Analysis of OECD
Countries,” OECD Economics Department Working Paper No. 656, December 2008,
http://www.olis.oecd.org/olis/2008doc.nsf/LinkTo/NT00007A42/$FILE/JT03257802.PDF.
46
R. Alison Felix, “Passing the Burden: Corporate Tax Incidence in Open Economies,” Federal Reserve
Bank of Kansas City, Regional Research Working Paper No. 07-01, October 2007,
http://www.kc.frb.org/Publicat/RegionalRWP/RRWP07-01.pdf.
47
Kevin A. Hassett and Aparna Mathur, “Taxes and Wages,” American Enterprise Institute, Working Paper
No. 128, June 2006, http://www.aei.org/docLib/20060706_TaxesandWages.pdf.
56
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48
Jens Arnold, “Do Tax Structures Affect Aggregate Economic Growth?: Empirical Evidence from a Panel
of OECD Countries,” OECD Economics Department Working Paper No. 643, October 2008, pp. 2–12,
http://www.olis.oecd.org/olis/2008doc.nsf/LinkTo/NT00005C32/$FILE/JT03252848.PDF.
49
Young Lee and Roger Gordon, “Tax Structure and Economic Growth,” Journal of Public Economics
(Vol. 89, Issues 5-6, June 2005), pp. 1027-1043.
50
Kimberly A. Clausing, “Corporate Tax Revenues in OECD Countries,” International Tax and Public
Finance (Vol. 14, Issue 2, April 2007), pp. 115–133; and Kevin A. Hassett and Alex Brill, “Revenue-
Maximizing Corporate Income Taxes: The Laffer Curve in OECD Countries,” American Enterprise
Institute Working Paper no. 137, July 2007, http://www.aei.org/docLib/20070731_Corplaffer7_31_07.pdf.
51
Nico Stehr, Knowledge and Economic Conduct: The Social Foundations of the Modern Economy
(Toronto: University of Toronto Press, 2002).
52
Erik Baark, “Innovation Policy Forensics: An Analysis of Biotechnology in Hong Kong,” paper presented
at the DRUID Tenth Anniversary Summer Conference 2005, Copenhagen, Denmark.
53
Joseph Schumpeter, “The Explanation of the Business Cycle,” Economica (1927); and Schumpeter,
Capitalism, Socialism, and Democracy (New York: Harper Perennial, 1962).
54
Peter Drucker, “The Age of Social Transformation,” Atlantic Monthly, November 1994; and Benoit
Godin, “The Knowledge-Based Economy: Conceptual Framework or Buzzword?,” Journal of Technology
Transfer 36, no. 1 (January 2006).
55
Paul Romer, “Increasing Returns and Long-Run Growth,” Journal of Political Economy 94 no. 5 (1986),
1002-37; Romer, “Endogenous Technological Change,” Journal of Political Economy 98, no. 5 (1990), 71-
102; Manuel Castells, The Rise of the Network Society, 2nd ed. (Milden, MA: Blackwell Publishers, 2000).
56
Charles R. Hulten, “Total Factor Productivity: A Short Biography,” NBER working paper no. 7471,
January 2000; and Hulten, E. R. Dean, and M. J. Harper, New Directions in Productivity Analysis: Studies
in Income and Wealth (Chicago: University of Chicago Press for the National Bureau of Economic
Research, 2001).
57
Romer, “Increasing Returns and Long-Run Growth” and “Endogenous Technological Change.”
58
Benjamin Yeo and Eileen Trauth, “The Call for Transformational Governance in the Knowledge
Economy,” in Handbook of Research on ICT-Enabled Transformational Government: A Global
Perspective, eds. V. Weerakkody, M. Janssen, and Y. Dwivedi (Information Science Publishing, 2009).
pp. 271-290.
59
Daniel Bell, The Coming of the Post-Industrial Society: A Venture in Social Forecasting (New York:
Basic Books, 1973).
60
Benjamin Russo, “A Cost-Benefit Analysis of R&D Tax Incentives,” Canadian Journal of Economics 37,
no. 2 (2004), pp. 313-335.
61
Anwar Shah, “The Economics of Research and Development. How Research and Development Capital
Affects Production and Markets and Is Affected by Tax Incentives,” The World Bank, Policy Research
Working Paper 1325, June 1994.
62
Benjamin Yeo, Developing a Sustainable Knowledge Economy: An Investigation of Contextual Factors
(Germany: VDM Publishing, 2009).
63
Schumpeter, Capitalism, Socialism, and Democracy.
64
David Hart, The Emergence of Entrepreneurship Policy (Cambridge,UK: Cambridge University Press,
2003).
65
Ibid.
66
Shah, “The Economics of Research and Development.”
67
Eoin O'Malley, “The Performance of Irish Indigenous Industry: Some Lessons for the 1980s,” in
Perspectives on Irish Industry, eds. J. Fitzpatrick and J. Kelly (Dublin: Irish Management Institute, 1985),
pp. 34–45.
68
Spence Wise and Morgan Miles, “The R&D Tax Credit and Its Implications for Small Business,” The
Journal of Applied Business Research 19, no. 3 (2003), pp. 11-18. Also see M.H. Morris, Entrepreneurial
Intensity: Sustainable Advantage for Individuals, Organizations, and Societies (Westport, CT: Quorum
Books, 1998), pp. 93–111; and J.F. Hulpke and T. Byrnes, “SBDC, SBI and SCORE in the Emerald Isle:
Management Assistance Programs in Ireland,” Journal of Small Business Management 32, no. 4 (1994),
pp. 78-83.
57
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69
Yonghong Wu, “The Effects of State R&D Tax Credits in Stimulating Private R&D Expenditure: A Cross-
State Empirical Analysis,” Journal of Policy Analysis and Management 24, no. 4 (2005): 785–802.
70
Robert Atkinson, “Expanding the R&D Tax Credit to Drive Innovation, Competitiveness and Prosperity,”
Journal of Technology Transfer 32 (2007), 617-628.
71
Charles Berube and Pierre Mohnen, “Are Firms That Receive R&D Subsidies More Innovative?”
Canadian Journal of Economics 42, no. 1 (2009), pp. 206-225.
72
Daneil Wilson, “Beggar Thy Neighbor? The In-State, Out-of-State, and Aggregate Effects of R&D Tax
Credits,” Federal Reserve Bank of San Francisco Working Paper Series 2005-08, August 2007; and Wu,
“The Effects of State R&D Tax Credits in Stimulating Private R&D Expenditure.”
73
Benjamin Russo, “A Cost-Benefit Analysis of R&D Tax Incentives,” Canadian Journal of Economics 37,
no. 2 (2004), pp. 313-335.
74
Jacek Warda, “Tax Treatment of Investment in Intellectual Assets: An International Comparison,” OECD
Science, Technology and Industry Working Papers 4, 2006.
75
Robert Atkinson, “Expanding the R&E Tax Credit to Drive Innovation, Competitiveness and Prosperity.”
76
Charles Berube and Pierre Mohnen, “Are Firms That Receive R&D Subsidies More Innovative?” For
further empirical evidence in Canada, see Bev Dahlby, “A Framework for Evaluating Provincial R&D Tax
Subsidies,” Canadian Public Policy 31 (2005), pp. 45–58; Marcel Dagenais, Pierre Mohnen, and Pierre
Therrien, “Les firmes canadi-ennes repondent-elles aux incitations fiscales a la recherche-
developpement? Actualite Economique 80 (2004), pp. 175–206; and Anwar Shah, “The Economics of
Research and Development.”
77
Kenneth Klassen, Jeffrey Pittman, and Margaret Reed, “A Cross-National Comparison of R&D
Expenditure Decisions: Tax Incentives and Financial Constraints,” Contemporary Accounting Research
21, no. 3 (2003).
78
Bronwyn Hall and John Michael van Reenen, “How Effective Are Fscal Incentives for R&D? A Review of
the Evidence,” NBER working paper no. 7098, 2000, pp. 449–469.
79
Benoit Mulkay and Jacques Mairesse, “The Effect of the R&D Tax Credit in France,” presented at EEA-
ESEM Conference, Stockholm, Sweden (2003).
80
Rachel Griffith, Stephen Redding, John Michael van Reenen, “Measuring the Cost Effectiveness of an
R&D Tax Credit for the U.K, Centre for Economic Performance discussion paper 0509, LSE, 2001.
81
Wu, “The Effects of State R&D Tax Credits in Stimulating Private R&D Expenditure: A Cross-state
Empirical Analysis.” See also Wu, “State R&D Tax Credits and High-Technology Establishments,”
Economic Development Quarterly 22 (2008), p. 136; Baghana, R., and Mohen, P. (2009). Effectiveness
of R&D Tax Incentives in Small and Large Enterprises in Quebec. CIRANO Working Papers, 2009s-01.;
and Dirk Czarnitzki, Petr Hanel, and Julio M. Rosa, “Evaluating the Impact of R&D Tax Credits on
Innovation: A Microeconometric Study on Canadian Firms,” CIRST Note de recherche 2005–02
82
A.D. Bardhan and D.M. Jaffee, “Innovation, R&D and Offshoring,” University of California Berkeley:
Fisher Center for Real Estate & Urban Economics, 2005.
83
Wise and Miles, “The R&D Tax Credit and Its Implications for Small Business.”
84
This is the IRS’s reported marginal rate of R&D tax credit. The baseline projection didn’t include a
continuation of Alternative Simplified Research Credit, which was in place in 2008 and 2009. This
simulation should be viewed as providing an estimate of a 25 percent increase in the marginal rate of the
R&D tax credit.
85
Panel on the Future Design and Implementation of U.S. National Security Export Controls, et al.,
Finding Common Ground: U.S. Export Controls in a Changed Global Environment (The National
Academies Press, 1991), pp. 61, http://www.nap.edu/catalog.php?record_id=1617
86
Ian F. Fergussion, “The Export Administration Act: Evolution, Provisions, and Debate,” CRS Report for
Congress, July 2009, p. 2, http://www.fas.org/sgp/crs/secrecy/RL31832.pdf.
87
Steve Vogel, “U.S. Proposes NATO Partnerships for Former Warsaw Pact Nations,” The Tech ,
October 22, 1993, http://tech.mit.edu/V113/N51/nato.51w.html
88
Bureau of Industry and Security, Introduction to Commerce Department Export Control,
http://www.bis.doc.gov/licensing/exportingbasics.htm
89
The list includes Australia, Switzerland, France, and Germany, among others. For more information,
refer to Export Administration Regulations Database, http://www.access.gpo.gov/bis/ear/pdf/740spir.pdf
58
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90
The list includes China, Iraq, North Korea, Russia, Ukraine, Vietnam, and others. For more information,
refer to Export Administration Regulations Database,
http://www.bis.doc.gov/news/2009/bis_annual_report_2008.pdf
91
Export Administration Regulations Database, http://www.access.gpo.gov/bis/ear/pdf/744.pdf
92
Fergussion “The Export Administration Act: Evolution, Provisions, and Debate,” p. 26.
93
Yoko Yasuhara, “The Myth of Free Trade: The Origins of COCOM 1945-1950,” The Japanese Journal
of American Studies, no. 4 (1991), p. 127, http://wwwsoc.nii.ac.jp/jaas/periodicals/JJAS/PDF/1991/No.04-
127.pdf
94
Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and
Technologies, http://www.wassenaar.org/publicdocuments/whatis.html
95
Missile Technology Control Regime, http://www.mtcr.info/english/index.html
96
Committee on Science, Security, and Prosperity; Committee on Scientific Communication and National
Security; National Research Council, “Beyond Fortress America: National Security Controls on Science
and Technology in a Globalized World,” (The National Academies Press, 2009), p. 4,
http://books.nap.edu/catalog.php?record_id=12567.
97
Jan Fagerberg , “User-Producer Interaction, Learning and Comparative Advantage,” Cambridge Journal
of Economics 19, no. 1 (1995), p. 243, http://cje.oxfordjournals.org/cgi/content/abstract/19/1/243
98
Staffan Burenstam Linder, “An Essay on Trade and Transformation,” (John Wiley and Sons/Almqvist &
Wiksell Almquist, 1961)..
99
Paul Freedenberg, “Hearing on Establishing an Effective Modern Framework for Export Controls”, U.S.
Senate Committee on Banking, Housing and Urban Affairs, February 2001,
http://banking.senate.gov/01_02hrg/020701/freeden.htm.
100
This group of nations includes India, China, Pakistan, Russia, and Israel.
101
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS140000
00 (accessed January 13, 2010).
102
Federal Reserve Board: Senior Loan Officer Opinion Survey.
103
U.S. Energy Information Administration, Figure 12: Marketed Energy Use by Region 1990-2030,
http://www.eia.doe.gov/oiaf/ieo/world.html
104
North American Industry Classification System, Executive Office of the President, Office of
Management and Budget, United States, 2002, pp. 171-198.
105
Regional Multipliers, A User Handbook for the Regional Input-Output Modeling System (RIMS II), U.S.
Department of Commerce, Third edition, March 1997.
106
The BEA multipliers are based on the 1997 national benchmark input-output (I-O) accounts, while
incorporating 2004 regional data as defined by the North American Industry Classification System
(NAICS). The output, earnings, and employment multipliers used in our analysis are based on a final-
demand concept. For example, the final-demand multiplier for output measures the total dollar change in
output in all industries that results from a $1 change in output delivered to final demand by the industry
where the investments were originally injected.
107
A key assumption is that any new funding will follow the same allocation determined by previous
funding. Each department self-regulates and we rely on their industry knowledge to determine which
areas have the most need. We therefore maintain the same ratio of investments across each program.
108
The exception is offshore/onshore drilling; in the absence of agency information, industry trends were
applied.
109
Output per employee statistics are calculated from Bureau of Economic Analysis’ output data and the
Bureau of Labor Statistics’ employment numbers.
110
Figure based on 2009 BLS CES survey (average weekly earnings of production workers). The average
annual income for workers across all private-sector industries is $32,000.
111
($1,405.3 billion/$425.6 billion) minus the initial dollar invested.
112
http://downloads.transportation.org/2009emphasis.pdf (accessed January 13, 2010).
113
http://www.hybridcar.com/index.php?option=com_content&task=blogcategory&id=47&Itemid=113
(accessed January 13, 2010).
114
http://www.betterroads.com/better-bridges-bridge-inventory-2009-state-of-bridges/ (accessed January
13, 2010).
59
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115
http://www.transact.org/onerail/Letter_to_Chairman_Olver-20090925.pdf (accessed January 15, 2010)
116
http://www.dot.gov/recovery/ost/faqs.htm (accessed January 15, 2010).
117
http://www.transact.org/ (accessed January 15, 2010).
118
http://transportation.house.gov/Media/file/Highways/HPP/Surface%20Transportation%20Blueprint%20
Executive%20Summary.pdf (accessed January 14, 2010).
119
http://tec.army.mil/echarts/about/ (accessed January 13, 2010).
120
http://www.iwr.usace.army.mil/docs/InlandNavigation.pdf (accessed January 19, 2010).
121
http://www.iwr.usace.army.mil/usersboard/Annual_Report_23.pdf (accessed January 14, 2010).
122
http://www.lre.usace.army.mil/_kd/Items/actions.cfm?action=Show&item_id=5413&destination=ShowIt
em and http://www.eenews.net/public/EEDaily/2009/07/27/1 (accessed January 13, 2010).
123
http://www.sandandgravel.com/news/article.asp?v1=11876 (accessed January 13, 2010).
124
http://www.eia.doe.gov/cneaf/solar.renewables/page/rea_data/figure1_1.pdf (accessed January 13,
2010).
125
http://www.eia.doe.gov/cneaf/solar.renewables/page/trends/table1_5b.pdf (accessed January 13,
2010).
126
Klowden, K., Charuworn, A., DeVol, R. Charting a Course for Arizona’s Technology-Based Economic
Development, (Milken Institute, 2009).
127
http://news.xinhuanet.com/english/2009-12/29/content_12719890.htm (accessed January 12, 2010)
128
Spain 20% of electricity generated nuclear (2008) http://www.physorg.com/news163943479.html.
France 78% (2008) "Nuclear Power in France. Briefing Paper 28." World Nuclear Association. May 2008,
Switzerland 40% http://www.world-nuclear.org/info/inf86.html.
Sweden 36.2% http://www.solcomhouse.com/nuclear.htm.
129
U.S. Energy Information Administration, Table 11.1 World Primary Energy Production by Source 1970-
2006, released June 26, 2009.
130
U.S. Energy Information Administration, Annual Energy Review 2008, Figure 2.0 Primary Energy
Consumption by Source and Sector, 2008.
131
U.S. Energy Information Administration, State Energy Data 2007: Prices and Expenditures, table S6a.
Electric Power Sector Energy Price Estimates by Source, 2007.
132
http://www.nrc.gov/reading-rm/doc-collections/fact-sheets/3mile-isle.html (accessed January 13, 2010).
133
http://www.phyast.pitt.edu/~blc/book/chapter9.html (accessed January 13, 2010).
134
Blueprint for 100 New Nuclear Power Plants in 20 Years, p. 21,
http://alexander.senate.gov/public/_pdfs/blueprint.pdf (accessed January 13, 2010).
135
U.S. Energy Information Administration, Annual Energy Review 2008, Figure 2.0 Primary Energy
Consumption by Source and Sector, 2008.
136
http://www.eia.doe.gov/emeu/international/reserves.html (accessed January 13, 2010).
137
The $46.5 billion is computed from an industry standard 5-Year Average using 2000-2008 investment
figures from IHS Global Insight. The average growth of the 5-Year Average in this time period was 8.69
percent, with $356 billion (2004) reported in U.S. exploration expenditures expressed in real dollars. Half
of the growth, which amounts to $15.5 billion/yr, will be considered part of a federal stimulus plan. Over a
three-year window this would total $46.5 billion. The high investment cost is more apparent when we take
a deeper look at the industry. This past decade has been characterized by high oil prices that have driven
exploration deeper for these scarce energy sources, thereby driving up construction, lifting (production),
exploration, and labor costs.
138
http://www.ers.usda.gov/Publications/ERR78/ERR78g.pdf (accessed January 13, 2010).
139
http://www.faa.gov/news/fact_sheets/news_story.cfm?newsId=10856 (accessed January 13, 2010).
140
http://www.faa.gov/about/initiatives/nextgen/portfolio/ (accessed January 13, 2010).
141
http://www.epa.gov/owm/cwfinance/cwsrf/ (accessed January 13, 2010).
142
http://www.epa.gov/safewater/dwsrf/index.html (accessed January 13, 2010).
143
http://www.gao.gov/new.items/d09893t.pdf (accessed January 13, 2010).
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Economic and tax policy changes,

To perform these three alternative simulations, we utilized a macro-econometric dynamic

Corporate Income Tax Policy Simulation

Impacts on total employment

Impacts on manufacturing employment

R&D Tax Credit Simulation

Modernization of Export Controls Simulation

Modernizing the nation’s infrastructure represents an opportunity to create thousands of jobs

Summary of economic impacts by project

Our project-by-project analysis shows the following results:

Building a Foundation for Growth

Infrastructure investment—whether undertaken by government or initiated via public-private

In addition to the obvious short-term imperative of job creation, infrastructure development

Improving Economic and Tax Policy

• First, we evaluate the probable economic impacts over 10 years of a 13 percentage

Corporate Income Tax Rate

Globalization and Location Decisions

A review of globalization’s growing impact on the U.S. economy is enlightening. As recently as

Corporate Taxes and Investment

Among the other international considerations of a high corporate tax rate:

• The efficiency of investment is reduced as businesses allocate capital investment in

International Comparisons of Statutory Corporate Income Tax Rates

Statutory corporate income tax rates

Empirical Evidence of the Economic Impacts of Corporate Tax Rates

Corporate Income Tax Policy Simulation

Corporate income tax policy simulation

Corporate income tax policy simulation

As manufacturing output expands in our lower-tax-rate scenario, employment in the

Corporate income tax policy simulation

Ib. Annual real GDP growth

II. Real exports of goods & services, US$ billions*

III. Real gross private fixed nonresidential investment, US$ billions*

IVa. Employment--manufacturing, millions

IVb. Employment--total nonfarm, millions

VI. FY unified budget balance, US$ billions

R&D Tax Credit

The Importance of Innovation

Continuous Research and Development for Sustainable Growth

Innovation, along with entrepreneurship, involves a lengthy process of research and

It is important to acknowledge that innovation is fleeting. What is groundbreaking today is less

Research and development activities are typically time-consuming and resource-intensive. 66

Encouraging Innovation through R&D Tax Credits

R&D Tax Credit Simulation

R&D tax credit permanent and increased by 25 percent policy simulation

R&D tax credit permanent and increased by 25 percent policy simulation

R&D tax credit permanent and increased by 25 percent policy simulation

Real R&D spending funded by industry, US$ billions*

Ib. Annual real GDP growth

II. Real exports of goods & services, US$ billions*

III. Real gross private fixed nonresidential investment, US$ billions*

IVa. Employment--manufacturing, millions

IVb. Employment--total nonfarm, millions

VI. FY unified budget balance, US$ billions

• Modernizing U.S. export controls on commercially available technology products with

U.S. Policy on Export Controls

• Greater exports of widely available technology to countries around the globe

A Brief History of U.S. Export Control Policies